[Federal Register Volume 86, Number 206 (Thursday, October 28, 2021)]
[Notices]
[Pages 59776-59797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-23444]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93412; File No. S7-09-21]


Order Granting Conditional Substituted Compliance in Connection 
With Certain Requirements Applicable to Non-U.S. Security-Based Swap 
Dealers and Major Security-Based Swap Participants Subject to 
Regulation in the Kingdom of Spain

October 22, 2021.

I. Overview

    The Spanish Comisi[oacute]n Nacional del Mercado de Valores 
(``CNMV'') has submitted a ``substituted compliance'' application 
requesting that the Securities and Exchange Commission (``Commission'') 
determine, pursuant to the Securities Exchange Act of 1934 (``Exchange 
Act'') rule 3a71-6,\1\ that security-based swap dealers and major 
security-based swap participants (``SBS Entities'') subject to 
regulation in the Kingdom of Spain (``Spain'') conditionally may 
satisfy requirements under the Exchange Act by complying with 
comparable Spanish and European Union (``EU'') requirements.\2\ The 
CNMV sought substituted compliance in connection with certain Exchange 
Act requirements related to risk control, internal supervision, chief 
compliance officer, antitrust, counterparty protection, recordkeeping, 
reporting, and notification.\3\ The CNMV Application incorporated 
comparability analyses between the relevant requirements in Exchange 
Act section 15F \4\ and the rules and regulations thereunder and 
applicable Spanish and EU law, as well as information regarding Spanish 
and EU supervisory and enforcement frameworks.
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    \1\ 17 CFR 240.3a71-6.
    \2\ See Letter from Rodrigo Buenaventura, Chair, CNMV, dated 
August 20, 2021 (``CNMV Application''). The CNMV Application is 
available on the Commission's website at: https://www.sec.gov/page/exchange-act-substituted-compliance-and-listed-jurisidction-applications-security-based-swap.
    \3\ Risk control requirements include requirements related to 
internal risk management, trade acknowledgement and verification, 
portfolio reconciliation and dispute resolution, portfolio 
compression, and trading relationship documentation; internal 
supervision, chief compliance officer, and antittrust requirements 
include requirements related to diligent supervision, conflicts of 
interest, information gathering, chief compliance officers, and 
antitrust considerations; counterparty protection requirements 
include requirements related to disclosure of material risks and 
characteristics, disclosure of material incentives or conflicts of 
interest, ``know your counterparty,'' suitability of 
recommendations, fair and balanced communications, disclosure of 
daily marks, and disclosure of clearing rights; and recordkeeping, 
reporting, and notification requirements include requirements 
related to making and keeping current certain prescribed records, 
preservation of records, reporting, and notificiation.
    \4\ 15 U.S.C. 78o-10.
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    On August 20, 2021, the Commission issued a notice of the CNMV 
Application, accompanied by a proposed order to grant substituted 
compliance with conditions in connection with the CNMV Application 
(``proposed Order'').\5\ The proposed Order incorporated a number of 
conditions to tailor the scope of substituted compliance consistent 
with the prerequisite that relevant Spanish and EU requirements produce 
regulatory outcomes that are comparable to relevant requirements under 
the Exchange Act.
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    \5\ See Exchange Act Release No. 92716 (Aug. 20, 2021), 86 FR 
47668 (Aug. 26, 2021) (``Spanish Substituted Compliance Notice and 
Proposed Order'').
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    As discussed below, the Commission is adopting a final order 
(``Order'') that has been modified from the proposal in certain 
respects to address commenter concerns and to make clarifying changes.

II. Substituted Compliance Framework and Prerequisites

A. Substituted Compliance Framework and Purpose

    As the Commission has discussed previously,\6\ Exchange Act rule 
3a71-6 provides a framework whereby non-U.S. SBS Entities may satisfy 
certain requirements under Exchange Act section 15F by complying with 
comparable regulatory requirements of a foreign jurisdiction.\7\ 
Because substituted compliance does not constitute exemptive relief, 
but instead provides an alternative method by which non-U.S. SBS 
Entities may comply with applicable Exchange Act requirements, the non-
U.S. SBS Entities would remain subject to the relevant requirements 
under section 15F. The Commission accordingly will retain the authority 
to inspect, examine, and supervise those SBS Entities' compliance and 
take enforcement action as appropriate. Under the substituted 
compliance framework, failure to comply with the applicable foreign 
requirements and other conditions to a substituted compliance order 
would lead to a violation of the applicable requirements under the 
Exchange Act and potential enforcement action by the Commission (as 
opposed to automatic revocation of the substituted compliance order).
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    \6\ See, e.g., Exchange Act Release No. 90378 (Nov. 9, 2020), 85 
FR 72726 (Nov. 13, 2020) (``German Substituted Compliance Notice and 
Proposed Order''); Exchange Act Release No. 90765 (Dec. 22, 2020), 
85 FR 85686 (Dec. 29, 2020) (``German Substituted Compliance 
Order'') Exchange Act Release No. 92647 (Aug. 12, 2021), 86 FR 46500 
(Aug. 18, 2021) (``German Substituted Compliance Notice and Proposed 
Amended Order''); Exchange Act Release No. 93411 (Oct. 22, 2021) 
(``German Amended Substituted Compliance Order''); Exchange Act 
Release No. 90766 (Dec. 22, 2020), 85 FR 85720 (Dec. 29, 2020) 
(``French Substituted Compliance Notice and Proposed Order''); 
Exchange Act Release No. 91477 (Apr. 5, 2021), 86 FR 18341 (Apr. 8, 
2021) (``French Substituted Compliance Re-Opening Release''); 
Exchange Act Release No. 92484 (July 23, 2021), 86 FR 41612 (Aug. 2, 
2021) (``French Substituted Compliance Order''); Exchange Act 
Release No. 91476 (Apr. 5, 2021), 86 FR 18378 (Apr. 8, 2021) (``UK 
Substituted Compliance Notice and Proposed Order''); Exchange Act 
Release No. 92529 (July 30, 2021), 86 FR 43318 (August 6, 2021), 
``UK Substituted Compliance Order''); Exchange Act Release No. 92632 
(Aug. 10, 2021), 86 FR 45770 (Aug. 16, 2021) (``Swiss Substituted 
Compliance Notice and Proposed Order''); Exchange Act Release No. 
93284 (Oct. 8, 2021), 86 FR 57455 (Oct. 15, 2021) (``Swiss 
Substituted Compliance Order''); Spanish Substituted Compliance 
Notice and Proposed Order, 86 FR 47668.
    \7\ See Exchange Act Release No. 77617 (Apr. 14, 2016), 81 FR 
29960, 30079 (May 13, 2016) (``Business Conduct Adopting Release'').
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    Under rule 3a71-6, substituted compliance potentially is available 
in connection with certain section 15F requirements,\8\ but is not 
available in connection with antifraud prohibitions and certain other 
requirements under the Federal securities laws.\9\ SBS

[[Page 59777]]

Entities in Spain accordingly must comply directly with those 
requirements notwithstanding the availability of substituted compliance 
for other requirements.
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    \8\ 17 CFR 240.3a71-6(d).
    \9\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47669 n.10 (addressing unavailability under Rule 3a71-6 
of substituted compliance for information-related requirements under 
Exchange Act section 15F, as well as for provisions related to anti-
fraud, transactions with counterparties that are not eligible 
contract participants, segregation of customer assets, required 
clearing upon counterparty election, regulatory reporting and public 
dissemination, SBS Entity registration, and registration of 
offerings).
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    The substituted compliance framework reflects the cross-border 
nature of the security-based swap market, and is intended to promote 
efficiency and competition by helping to address potential duplication 
and inconsistency between relevant U.S. and foreign requirements.\10\ 
In practice, substituted compliance may be expected to help SBS 
Entities leverage their existing systems and practices to comply with 
relevant Exchange Act requirements in conjunction with their compliance 
with relevant foreign requirements. Market participants began to count 
security-based swap transactions towards the thresholds for 
registration with the Commission as an SBS Entity on August 6, 2021. 
Security-based swap dealers and major security-based swap participants 
who met or exceeded one of the relevant de minimis thresholds for 
registration by the end of August are required to be registered with 
the Commission by November 1, 2021, or December 1, 2021, 
respectively.\11\ Substituted compliance should assist relevant non-
U.S. security-based swap market participants in preparing for 
registration.
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    \10\ See generally Business Conduct Adopting Release, 81 FR 
30073 (stating that the cross-border nature of the security-based 
swap market poses special regulatory challenges, in that relevant 
U.S. requirements ``have the potential to lead to requirements that 
are duplicative of or in conflict with applicable foreign business 
conduct requirements, even when the two sets of requirements 
implement similar goals and lead to similar results'').
    \11\ See ``Key Dates for Registration of Security-Based Swap 
Dealers and Major Security-Based Swap Participants,'' available at 
https://www.sec.gov/page/key-dates-registration-security-based-swap-dealers-and-major-security-based-swap-participants.
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B. Specific Prerequisites

1. Comparability of Regulatory Outcomes
    Rule 3a71-6, adopted by the Commission in 2016, describes the 
requirements for the Commission to make a substituted compliance 
determination. Under the rule, the Commission must determine that the 
analogous foreign requirements are comparable to otherwise applicable 
requirements under the Exchange Act (i.e., the relevant requirements in 
the Exchange Act and the rules and regulations thereunder), after 
accounting for factors such as ``the scope and objectives of the 
relevant foreign regulatory requirements'' and ``the effectiveness of 
the supervisory compliance program administered, and the enforcement 
authority exercised'' by the foreign authority.\12\ The comparability 
assessments are to be based on a ``holistic approach'' that ``will 
focus on the comparability of regulatory outcomes rather than 
predicating substituted compliance on requirement-by-requirement 
similarity.'' \13\
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    \12\ Exchange Act rule 3a71-6(a)(2)(i).
    \13\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47670; see also Business Conduct Adopting Release, 81 
FR 30078-79 (recognizing that ``different regulatory systems may be 
able to achieve some or all of those regulatory outcomes by using 
more or fewer specific requirements than the Commission, and that in 
assessing comparability the Commission may need to take into account 
the manner in which other regulatory systems are informed by 
business and market practices in those jurisdictions''). The 
Commission's assessment of a foreign authority's supervisory and 
enforcement effectiveness--as part of the broader comparability 
analysis--would be expected to consider not only overall oversight 
activities, but also oversight specifically directed at conduct and 
activity relevant to the substituted compliance determination. ``For 
example, it would be difficult for the Commission to make a 
comparability determination in support of substituted compliance if 
oversight is directed solely at the local activities of foreign 
security-based swap dealers, as opposed to the cross-border 
activities of such dealers.'' Business Conduct Adopting Release, 81 
FR 30079 (footnote omitted). In the Spanish Substituted Compliance 
Notice and Proposed Order, the Commission preliminarily concluded 
that this comparability prerequisite was met in connection with a 
number of requirements under the Exchange Act, in some cases with 
the addition of conditions to help ensure the comparability of 
regulatory outcomes.
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2. Memoranda of Understanding
    Exchange Act rule 3a71-6(a)(2)(ii) further predicates the 
availability of substituted compliance on the Commission and the 
foreign financial regulatory authority or authorities having entered 
into a memorandum of understanding and/or other arrangement with the 
relevant foreign financial regulatory authority or authorities 
``addressing supervisory and enforcement cooperation and other matters 
arising under the substituted compliance determination.'' \14\ The CNMV 
Application asked the Commission to permit certain entities regulated 
and supervised by the CNMV and/or the Bank of Spain to use substituted 
compliance. Accordingly, the Commission recently entered into a 
memorandum of understanding with the CNMV and the Bank of Spain.\15\ 
Moreover, because the CNMV, Bank of Spain, and European Central Bank 
(``ECB'') share responsibility for supervising compliance with certain 
provisions of EU and Spanish law, the Commission and the ECB also have 
entered into a memorandum of understanding to address cooperation 
matters related to substituted compliance.\16\ Those memoranda of 
understanding or other arrangements must be in place before Covered 
Entities may use substituted compliance to satisfy obligations under 
the Exchange Act.\17\
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    \14\ Exchange Act rule 3a71-6(a)(2)(ii).
    \15\ The Commission expects to publish a copy of the memorandum 
of understanding on its website at www.sec.gov under the 
``Substituted Compliance'' tab, which is located on the ``Security-
Based Swap Markets'' page in the Division of Trading and Markets 
section of the site.
    \16\ The memorandum of understanding sets forth the conditions 
under which the Commission nay request, share, use, and protect from 
unauthorized disclosure supervisory and enforcement inform ation 
that is owned by the ECB. The memorandum of understanding also 
serves as a framework for consultation, cooperation, and exchange of 
information between the Commission and the ECB in the supervision, 
enforcement, and oversight of Spanish firms that are registered with 
the Commission as SBS Entities. A copy of the meorandum of 
understanding is available on the Commision's website oat https://www.sec.gov/files/8162021-exec7ted-ecb-mou-redacted-annex-secured_0.pdf.
    \17\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47669 n.12.
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3. ``Adequate Assurances''
    A foreign financial regulatory authority may submit a substituted 
compliance application only if the authority provides ``adequate 
assurances'' that no law or policy would impede the ability of any 
entity that is directly supervised by the authority and that may 
register with the Commission ``to provide prompt access to the 
Commission to such entity's books and records or to submit to onsite 
inspection or examination by the Commission.'' \18\ In the Spanish 
Substituted Compliance Notice and Proposed Order, the Commission stated 
that the CNMV had satisfied this prerequisite in the Commission's 
preliminary view, taking into account information and representations 
that the CNMV provided regarding certain Spanish and EU requirements 
that are relevant to the Commission's ability to inspect, and access 
the books and records of, firms using substituted compliance pursuant 
to the Order.\19\ The Commission received no comments on this 
preliminary view and has not changed its view.
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    \18\ See Exchange Act rule 3a71-6(c)(3).
    \19\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47669 n.13.
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    Commission rule 0-13 \20\ addresses procedures for filing 
substituted compliance applications. The rule provides that the 
Commission will publish a notice when a completed

[[Page 59778]]

application has been submitted and that any person may submit to the 
Commission ``any information that relates to the Commission action 
requested in the application.'' \21\
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    \20\ 17 CFR 240.0-13.
    \21\ See Commission rule 0-13(h). The Commission may take final 
action on a substituted compliance application no earlier than 25 
days following publication of the notice in the Federal Register.
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III. Scope of and Conditions to Substituted Compliance Under the Order

A. Comparability Considerations

    In considering the CNMV's request for substituted compliance, the 
Commission viewed requirements under the Exchange Act and requirements 
under Spanish and EU law to maintain similar approaches with respect to 
achieving regulatory goals in several respects, though they follow 
differing approaches or incorporate disparate elements in certain other 
respects. The Commission considered those similarities and differences 
when analyzing comparability and developing its views, while 
recognizing that differences in approach do not necessarily preclude 
substituted compliance in light of the Commission's holistic, outcomes-
oriented framework for assessing comparability. In this context, the 
Commission recognized that other regulatory regimes will have 
exclusions, exceptions, and exemptions that may not align perfectly 
with the corresponding requirements under the Exchange Act. Where the 
Commission found that the Spanish regime produces comparable outcomes 
notwithstanding those particular differences, the Commission has made a 
positive determination on substituted compliance.\22\ Where the 
Commission found that those exclusions, exemptions, and exceptions lead 
to outcomes that are not comparable, the Commission has not provided 
for substituted compliance.\23\ When a Covered Entity seeks to rely on 
substituted compliance to satisfy particular requirements under the 
Exchange Act, non-compliance with the applicable Spanish requirements 
would lead to a violation of those Exchange Act requirements and 
potential enforcement action by the Commission (as opposed to automatic 
revocation of the Order).
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    \22\ See paras. (b) through (e) of the Order (internal risk 
management, trade acknowledgment and verification, portfolio 
reconciliation and dispute reporting, portfolio compression, trading 
relationship documentation, internal supervision, chief compliance 
officers, disclosure of material risks and characteristics, 
disclosure of material incentives or conflicts of interest, ``know 
your counterparty,'' suitability, fair and balanced communications, 
daily mark disclosure, recordkeeping, reporting, and notification 
requirements).
    \23\ See Parts V.B (antitrust requirements), VI.B (clearing 
rights disclosure and certain ``know your counterparty'' 
requirements), and VII.B (certain recordkeeping requirements), 
infra.
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B. Covered Entities

1. Proposed Approach
    Under the proposed Order, the definition of ``Covered Entity'' 
specified which entities could make use of substituted compliance. 
Consistent with the availability of substituted compliance under 
Exchange Act rule 3a71-6, the proposed definition would limit the 
availability of substituted compliance to registered SBS Entities that 
are not U.S. persons. In addition, to help ensure that firms that rely 
on substituted compliance are subject to relevant Spanish and EU 
requirements and oversight, the proposed definition would require a 
Covered Entity to be an investment firm or credit institution 
authorized by the CNMV and the ECB to provide investment services or 
perform investment activities in Spain. In addition, the proposed 
definition would require a Covered Entity to be a significant 
institution supervised by the CNMV and the ECB (with the participation 
of the Bank of Spain).\24\
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    \24\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47670.
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2. Commenter Views and Final Provisions
    Commenters did not address the proposed ``Covered Entity'' 
definition, and the Commission is issuing the definition as 
proposed.\25\ Substituted compliance accordingly is available only to 
non-U.S. SBS Entities that have the relevant Spanish and EU regulatory 
permission and are subject to Spanish and EU oversight. Because the 
Covered Entity definition requires the firm to be ``authorized by the 
CNMV. . . to provided investment services and/or perform investment 
activities in'' Spain, only firms for whom the CNMV is the competent 
authority to grant such permission are able to qualify as Covered 
Entities.\26\
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    \25\ See para. (f)(1) of the Order.
    \26\ Firms authorized as investment firms or credit institutions 
by authorities of other EU Member States, whose authorization to 
provide investment services and/or perform investment activities in 
Spain derives from the single market ``passport'' under EU law, are 
not able to qualify as Covered Entities under the Order.
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C. General Conditions to Substituted Compliance

1. Proposed Approach
    The proposed Order incorporated a number of additional general 
conditions and other prerequisites, to help ensure that the relevant 
Spanish and EU requirements that form the basis for substituted 
compliance in practice will apply to the Covered Entity's security-
based swap business and activities, and to promote the Commission's 
oversight over entities that avail themselves of substituted 
compliance:
     ``Subject to and complies with'' applicability condition--
For each relevant section of the proposed Order, a positive substituted 
compliance determination would be predicated on the Covered Entity 
being subject to and complying with the applicable Spanish and EU 
requirements needed to establish comparability.\27\
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    \27\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47671 and n.31. The Commission stated, as an example, 
that this proposed condition would not be satisfied when the 
comparable Spanish or EU requirements would not apply to the 
security-based swap activities of a third-country branch of a 
Spanish SBS Entity. In that event, the Covered Entity would not be 
``subject to'' those requirements, and the Covered Entity could not 
rely on substituted compliance in connection with those activities. 
Moreover, an SBS Entity's ``voluntary'' compliance with the relevant 
Spanish requirements also would not suffice for these purposes. 
Substituted compliance reflects an alternative means by which an SBS 
Entity may comply with applicable requirements under the Exchange 
Act, and thus mandates that the SBS Entity be subject to the 
requirements needed to establish comparability and face consequences 
arising from any failure to comply with those requirements. The 
comparability assessment takes into account the effectiveness of the 
supervisory compliance program administered and the enforcement 
authority exercised by the CNMV, the Bank of Spain, and the ECB, and 
Spanish and EU requirements would not be expected to promote 
comparable outcomes when compliance merely is ``voluntary.''
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     Activities as MiFID ``investment services or 
activities''--The Covered Entity's security-based swap activities would 
have to constitute ``investment services or activities'' for purposes 
of applicable provisions under the Markets in Financial Instruments 
Directive, Directive 2014/65/EU (``MiFID''), Spanish requirements that 
implement MiFID, and/or other EU and/or Spanish requirements adopted 
pursuant to those provisions, and must fall within the scope of the 
Covered Entity's authorization from the CNMV and the ECB.\28\
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    \28\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47671 and n.32. Under this condition, a Covered 
Entity's security-based swap activities would have to constitute 
``investment services or activities'' only to the extent that the 
relevant part of the Order requires the Covered Entity to be subject 
to and comply with a provision of MiFID, Spanish requirements that 
implement MiFID, and/or related EU and/or Spanish requirements. If 
the relevant part of the Order does not require the Covered Entity 
to be subject to and comply with one of those provisions, then the 
Covered Entity's security-based swap activities would not have to 
constitute ``investment services or activities'' to be able to use 
substituted compliance under that part of the Order.

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     Counterparties as MiFID ``clients''--The Covered Entity's 
counterparty (or potential counterparty) must be a ``client'' (or 
potential ``client'') for purposes of applicable provisions under 
MiFID, Spanish requirements that implement MiFID, and/or other EU and 
Spanish requirements adopted pursuant to those provisions.\29\
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    \29\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47671 and n.33.
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     Security-based swaps as MiFID ``financial instruments''--
The relevant security-based swap must be a ``financial instrument'' for 
purposes of applicable provisions under MiFID, Spanish requirements 
that implement MiFID, and/or other EU and Spanish requirements adopted 
pursuant to those provisions.\30\
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    \30\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47671 and n.34.
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     Covered Entity as CRD ``institution''--The Covered Entity 
must be an ``institution'' for purposes of applicable provisions under 
the Capital Requirements Directive, Directive 2013/36/EU (``CRD''), 
Spanish requirements that implement CRD, and/or other EU and Spanish 
requirements adopted pursuant to those provisions.\31\
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    \31\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47671 and n.35.
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     Counterparties as EMIR ``counterparties''--If an 
applicable provision under the European Market Infrastructure 
Regulation, Regulation (EU) 648/2012 (``EMIR''), Commission Delegated 
Regulation (EU) 149/2013 (``EMIR RTS''), Delegated Regulation (EU) 
2016/2251 (``EMIR Margin RTS''), and/or other EU requirements adopted 
pursuant to those provisions applies only to the Covered Entity's 
activities with specified types of counterparties, and if the 
counterparty is not any of the specified types of counterparties, the 
Covered Entity must comply with the applicable provision as if the 
counterparty were the specified type of counterparty. In addition, the 
proposed Order would provide that a Covered Entity could not satisfy a 
condition requiring compliance with those EMIR-based provisions by 
complying with third country requirements that EU authorities may 
determine to be equivalent to EMIR.\32\
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    \32\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47671 and nn.36-37. The Commission proposed that, if 
the Covered Entity reasonably determines that the counterparty would 
be a financial counterparty if it were established in the EU and 
authorized by appropriate EU authority (including Member State 
authorities), it must treat the counterparty as if the counterparty 
were a financial counterparty, rather than as another type of 
counterparty to which the relevant EMIR-based requirements apply. 
EMIR article 2(8) defines a ``financial counterparty'' as including 
investment firms, credit institutions, insurers, and certain other 
types of businesses that have been authorized in accordance with EU 
directives.
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     Security-based swap status under EMIR--The relevant 
security-based swap must be, for purposes of applicable provisions 
under EMIR, EMIR RTS, EMIR Margin RTS, and/or other EU requirements 
adopted pursuant to those provisions, either (i) and ``OTC derivative'' 
or ``OTC derivative contract,'' as defined in EMIR article 2(7), that 
has not been cleared by a central counterparty and otherwise is subject 
to the provisions of EMIR article 11, EMIR RTS articles 11 through 15, 
and EMIR Margin RTS article 2; or (ii) cleared by a central 
counterparty that is authorized or recognized to clear derivatives 
contracts by a relevant authority in the EU.\33\
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    \33\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47671 and n.38.
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     Memoranda of understanding--The Commission and the CNMV 
and the Bank of Spain must have an applicable memorandum of 
understanding or other arrangement addressing cooperation with respect 
to the Order at the time the Covered Entity makes use of substituted 
compliance. Because the CNMV, Bank of Spain, and ECB share 
responsibility for supervising compliance with some of the provisions 
of EU and Spanish law addressed by the proposed Order, at the time the 
Covered Entity makes use of substituted compliance the Commission and 
the ECB also must have a supervisory and enforcement memorandum of 
understanding and/or other arrangement addressing cooperation with 
respect to the Order as it pertains to information owned by the 
ECB.\34\
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    \34\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47671 and nn.39-41. The Commission, CNMV and Bank of 
Spain have entered into a memorandum of understanding to address 
substituted compliance cooperation. The Commission and the ECB also 
have entered into a memorandum of understanding to address 
substituted compliance cooperation with respect to information owned 
by the ECB. See also supra notes 15 through 17 and accompanying 
text. The proposed Order would require Covered Entities to ensure 
that these memoranda of understanding remain in place at the time 
the Covered Entity relies on substituted compliance.
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     Notice of reliance on substituted compliance--To assist 
the Commission's oversight of firms that avail themselves of 
substituted compliance, a Covered Entity would be required to notify 
the Commission of its intent to use substituted compliance.\35\ In the 
notice, the Covered Entity would need to identify each specific 
substituted compliance determination for which the Covered Entity 
intends to apply substituted compliance.\36\ If a Covered Entity elects 
not to apply substituted compliance with respect to a specific 
substituted compliance determination, it must instead comply directly 
with the relevant Exchange Act requirements. Further, except in the 
case of the counterparty protection requirements and linked 
recordkeeping requirements discussed below, the Commission has 
determined that the Exchange Act requirements subject to substituted 
compliance determinations in the proposed Order are entity-level 
requirements. The Commission thus proposed that, if a Covered Entity 
elects to apply substituted compliance to these entity-level 
requirements, it must do so at the entity level.\37\ The Covered Entity 
must promptly update the notice if it intends to modify its reliance on 
substituted compliance.\38\
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    \35\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47672 and n.42.
    \36\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47672 and n.43. The Commission stated that, if the 
Covered Entity intends to rely on all the substituted compliance 
determinations in a given paragraph of the proposed Order, it can 
cite that paragraph in the notice. For example, if the Covered 
Entity intends to rely on the substituted compliance determinations 
for Exchange Act risk control requirements in paragraph (b) of the 
proposed Order, it would indicate in the notice that it is relying 
on the determinations in paragraph (b). However, if the Covered 
Entity intends to rely on the internal risk management, trade 
acknowledgement and verification, and portfolio reconciliation and 
dispute resolution determinations, but not the portfolio compression 
and trading relationship documentation determinations, it would need 
to indicate in the notice that it is relying on paragraphs (b)(1) 
through (3) of the proposed Order. In this case, paragraphs (b)(4) 
and (b)(5) of the proposed Order (the portfolio compression and 
trading relationship documentation determinations, respectively) 
would be excluded from the notice and the Covered Entity would need 
to comply with Exchange Act portfolio compression and trading 
relationship documentation requirements. Further, as discussed below 
in Part VII, the recordkeeping, reporting, and notification 
determinations in the proposed Order were structured to provide 
Covered Entities with a high level of flexibility in selecting 
specific requirements within those requirements for which they want 
to rely on substituted compliance. For example, paragraph (e)(1)(i) 
of the proposed Order set forth the Commission's preliminary 
substituted compliance determinations with respect to the 
requirements of Exchange Act rule 18a 5, 17 CFR 240.18a-5. These 
proposed determinations were set forth in proposed paragraphs 
(e)(1)(i)(A) through (M). If a Covered Entity intends to rely on 
some but not all of the determinations, it would need to identify in 
the notice the specific determinations in this paragraph it intends 
to rely on (e.g., paragraphs (e)(1)(i)(A), (B), (C), (D), (G), (H), 
(I), and (M)). For any determinations excluded from the notice, the 
Covered Entity would need to comply with the Exchange Act rule 18a-5 
requirement.
    \37\ See Part III.E, infra; Spanish Substituted Compliance 
Notice and Proposed Order, 86 FR 47672 and n.44.
    \38\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47672 and n.45. A Covered Entity would modify its 
reliance on substituted compliance, and thus trigger the requirement 
to update its notice, if it adds or subtracts substituted compliance 
determinations on which it is relying or completely discontinues its 
reliance on substituted compliance.

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[[Page 59780]]

     Notification related to changes in capital category--
Covered Entities with a prudential regulator would need to apply 
substituted compliance with respect to the requirements of Exchange Act 
rule 18a-8(c) and the requirements of Exchange Act rule 18a-8(h) as 
applied to Exchange Act rule 18a-8(c).\39\ Exchange Act rule 18a-8(c) 
generally requires every security-based swap dealer with a prudential 
regulator that files a notice of adjustment of its reported capital 
category with the Federal Reserve Board, the Office of the Comptroller 
of the Currency, or the Federal Deposit Insurance Corporation to give 
notice of this fact to the that same day by transmitting a copy to the 
Commission of the notice of adjustment of reported capital category in 
accordance with Exchange Act rule 18a-8(h).\40\ Exchange Act rule 18a-
8(h) sets forth the manner in which every notice or report required to 
be given or transmitted pursuant to Exchange Act rule 18a-8 must be 
made. While Exchange Act rule 18a-8(c) is not linked to an Exchange Act 
capital requirement, it is linked to capital requirements in the U.S. 
promulgated by the prudential regulators. In its application, the CNMV 
cited various Spanish provisions as providing similar outcomes to the 
notifications requirements of Exchange Act rule 18a-8.\41\ This general 
condition would be designed to clarify that a prudentially regulated 
Covered Entity must provide the Commission with copies of any 
notifications regarding changes in the Covered Entity's capital 
situation required by Spanish law. The intent is to align the 
notification requirement with the EU and Spanish capital requirements 
applicable to the Covered Entity.
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    \39\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47672.
    \40\ 17 CFR 240.18a-8(c) and (h).
    \41\ See Act on Regulation, Supervision, and Solvency of Credit 
Institutions, Law 10/2014, of June 26 (``LOSSEC'') articles 116, 
119, 121, and 122; and Spanish Securities Market Act, Royal 
Legislative Decree 4/2015, of October 23 (``SSMA'') articles 276bis, 
276ter, 276qu[aacute]ter, and 276quinquies.
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2. Commenter Views and Final Provisions
    In the proposed Order, the Commission proposed to require Covered 
Entities to comply with only EMIR-based trade acknowledgement and 
verification and trading relationship documentation requirements, and 
not with MiFID-based trade acknowledgement and verification and trading 
relationship documentation requirements, in response concerns expressed 
by commenters on prior substituted compliance orders.\42\ Commenters on 
those prior orders had requested that the Commission delete from those 
orders proposed conditions that would require firms using substituted 
compliance for trade acknowledgment and verification and trading 
relationship documentation requirements to comply with MiFID-based 
requirements.\43\ Commenters argued that those MiFID-based conditions 
in practice would prevent SBS Entities with branches in other EU 
countries from relying on substituted compliance for those 
requirements, and that compliance with proposed EMIR conditions would 
be sufficient to produce the requisite regulatory outcomes. The 
Commission amended the prior orders to address these concerns, but only 
with the addition of the EMIR counterparties general condition and a 
related condition pertaining to EMIR. By requiring a Covered Entity to 
treat its counterparty as a type of counterparty that would trigger the 
application of the relevant EMIR-based requirements, the condition will 
require the Covered Entity to perform the relevant obligations pursuant 
to those EMIR-based requirements and thus act in a way that is 
comparable to Exchange Act requirements. Absent the condition, the 
Commission would not find comparability with regard to the categories 
of counterparties, such as U.S. persons and natural persons, to which 
EMIR is not applicable for the entity-level requirements and, 
accordingly, would not have been able to make a positive substituted 
compliance determination for those entity-level requirements. The EMIR 
counterparties general condition was intended to help ensure that, with 
the heightened reliance on EMIR-based requirements, there will be no 
opportunity for gaps that may prevent the EMIR-based requirements in 
practice from producing outcomes consistent with those of the Exchange 
Act.\44\
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    \42\ See French Substituted Compliance Re-Opening Release, 86 FR 
19341-43; German Substituted Compliance Notice and Proposed Amended 
Order, 86 FR 46503.
    \43\ See Letter from Kyle Brandon, Managing Director, Head of 
Derivatives Policy, Securities and Financial Markets Association, 
dated Jan. 25, 2021 (``France SIFMA Letter'') at 3-6 (cited in 
French Substituted Compliance Re-opening Release, 86 FR 18341-42 and 
nn.5-6; German Substituted Compliance Notice and Proposed Amended 
Order, 86 FR 46503 and nn.26-27); Letter from Etienne Barel, Deputy 
Chief Executive Officer, French Banking Federation, dated Jan. 25, 
2021 (``FBF Letter'') at 2 (cited in French Substituted Compliance 
Re-opening Release, 86 FR 18341-42 and nn.5-6). These comment 
letters are available on the Commission's website at https://www.sec.gov/comments/s7-22-20/s72220.htm.
    \44\ See German Substituted Compliance Notice and Proposed 
Amended Order, 86 FR 46503.
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    The Commission invited commenters on the proposed Order to address 
whether the responses to any of the questions that the Commission asked 
in connection with proposals to make positive substituted compliance 
determinations in respect of regulatory requirements and frameworks in 
Germany, France and the United Kingdom would differ if those questions 
applied to Spanish regulatory requirements and frameworks. The 
Commission also requested comment on any differences between Spanish 
regulatory requirements and frameworks and the German, French, or UK 
requirements and frameworks that formed the basis for the Commission's 
conditional grant of substituted compliance for Germany, France, and 
the United Kingdom.\45\
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    \45\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47687-90.
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    A commenter on the German Substituted Compliance Notice and 
Proposed Amended Order \46\ stated that the EMIR counterparties general 
condition would override exemptions and exclusions from EMIR for 
certain public sector counterparties, such as multilateral development 
banks, and would expand the application of EMIR to counterparties who 
are not ``undertakings,'' such as natural persons.\47\ That commenter 
noted that compliance with the condition would require the Covered 
Entity to ``assess whether these counterparties who are not subject to 
EMIR would be so subject as if it were the type of counterparty 
specified by EMIR as well as, in many cases, enter into documentation 
with those counterparties compliant with EMIR.'' \48\ The commenter 
noted that these counterparties would be confused why an order of the 
Commission ``now deprives them of an exception or exemption under EU 
law that has for some time applied to them'' and would be reluctant to 
enter into new documentation to enable a Covered Entity to satisfy the 
Commission's substituted compliance order.\49\ The Commission did not 
intend for the condition to require compliance with

[[Page 59781]]

EMIR-based requirements under circumstances where neither those 
requirements nor the Exchange Act would apply. To clarify this intended 
scope, the Commission modified the EMIR counterparties general 
condition in the German Amended Substituted Compliance Order to clarify 
that this condition applies only to the extent that an Exchange Act 
section or rule cited in the relevant part of the Order applies to the 
security-based swap activities with that counterparty.\50\ The 
Commission made conforming changes the UK Substituted Compliance Order 
and the French Substituted Compliance Order.\51\
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    \46\ See Letter from Kyle Brandon, Managing Director, Head of 
Derivatives Policy, Securities Industry and Financial Markets 
Association, dated Sept. 13 2021 (``Germany SIFMA Letter''). The 
Germany SIFMA Letter is available on the Commission's website at 
https://www.sec.gov/comments/s7-08-21/s70821.htm.
    \47\ See Germany SIFMA Letter at 2.
    \48\ See Germany SIFMA Letter at 3.
    \49\ See Germany SIFMA Letter at 3.
    \50\ See German Amended Substituted Compliance Order, Exchange 
Act Release No. 93411.
    \51\ See German Amended Substituted Compliance Order, Exchange 
Act Release No. 93411.
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    Returning to the Commission's consideration of the same EMIR 
regulatory framework in Spain, one commenter stated that proposed Order 
``reflects a thoughtful, holistic approach to substituted compliance.'' 
\52\ The commenter noted in particular that the Commission's 
comparability assessments and the conditions and limitations in the 
proposed Order were consistent with the UK Substituted Compliance 
Order, French Substituted Compliance Order, and the German Substituted 
Compliance Notice and Proposed Amended Order, and as a result concluded 
that the proposed Order ``would facilitate an orderly implementation of 
the Commission's [security-based swap] regulatory regime among market 
participants across different jurisdictions without creating undue 
complexity or disparity.'' \53\ In the context of the EMIR 
counterparties general condition, the Commission agrees that 
consistency among substituted compliance orders that require firms to 
be subject to and comply with EMIR and laws derived from EMIR, where 
feasible, would facilitate orderly implementation of substituted 
compliance. The Commission thus is changing the EMIR counterparties 
general condition in the Order to reflect the same changes made in the 
German Amended Substituted Compliance Order.\54\ The Commission 
believes this change will promote consistency among substituted 
compliance orders that require firms to be subject to and comply with 
EMIR and laws derived from EMIR, consistent with the commenter's 
concern and with the Commission's request for comment on differences 
between the Spanish, German, French, and UK regulatory requirements and 
frameworks.
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    \52\ See Letter from Julia Bay[oacute]n, Head of Business Legal 
and Vice-Secretary of the Board, Santander, dated Sept. 20, 2021 
(``Santander Letter''). The Santander Letter is available on the 
Commission's website at https://www.sec.gov/comments/s7-09-21/s70921.htm.
    \53\ See Santander Letter at 1.
    \54\ See para. (a)(5) of the Order.
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    The Commission also is amending the general condition in paragraph 
(a)(6) of the Order to clarify that the condition applies only if the 
relevant EMIR-based requirement applies to OTC derivatives that have 
not been cleared by a central counterparty, as some provisions of EMIR 
cited in the Order, such as EMIR articles 39(4) and (5), are not 
limited in their application to non-centrally cleared OTC derivatives.
    The Commission continues to believe that the remaining general 
conditions are structured appropriately to predicate a positive 
substituted compliance determination on the applicability of relevant 
Spanish and EU requirements needed to establish comparability, as well 
as on the continued effectiveness of the requisite memoranda of 
understanding, and the provision of appropriate notices to the 
Commission. The Commission is issuing these remaining general 
conditions as proposed, and substituted compliance accordingly is 
available only when the Covered Entity satisfies all applicable general 
conditions.\55\
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    \55\ See para. (a)(1) through (a)(9), and (a)(11) of the Order.
---------------------------------------------------------------------------

D. European Union Cross-Border Matters

1. Proposed Approach
    The proposed Order also included general conditions to address the 
cross-border application of MiFID, the Markets in Financial Instruments 
Regulation, Regulation (EU) 600/2014 (``MiFIR''), and the Market Abuse 
Regulation, Regulation (EU) 596/2014 (``MAR''), along with EU and 
Spanish requirements adopted pursuant to those laws.\56\ For some 
requirements under MiFID and MiFIR (and other EU and Member State 
requirements adopted pursuant to MiFID and MiFIR), EU law allocates the 
responsibility for supervising and enforcing those requirements to 
authorities of the Member State where an entity provides certain 
services.\57\ Similarly, for some requirements under MAR (and other EU 
and Member State requirements adopted pursuant to MAR), EU law 
allocates the responsibility for supervising and enforcing those 
requirements to authorities of potentially multiple Member States. To 
help ensure that the prerequisites to substituted compliance with 
respect to supervision and enforcement are satisfied in fact, when the 
proposed Order conditioned substituted compliance on the Covered Entity 
being subject to and complying with those MiFID- and MiFIR-related 
requirements, the proposed Order would permit substituted compliance 
only if the CNMV is the authority responsible for supervision and 
enforcement of those MiFID- and MiFIR-related requirements in relation 
to the particular service provided by the Covered Entity. When the 
proposed Order conditioned substituted compliance on the Covered Entity 
being subject to and complying with those MAR-related requirements, the 
proposed Order would permit substituted compliance only if one of the 
authorities responsible for supervision and enforcement of those 
requirements is the CNMV.
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    \56\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47672 and nn.48-50.
    \57\ See MiFID article 35(8).
---------------------------------------------------------------------------

2. Commenter Views and Final Provisions
    Commenters did not address the European Union cross-border 
conditions. The Commission continues to believe that requiring that the 
CNMV have responsibility for applicable MiFID, MiFIR, and MAR 
provisions will help ensure that the supervision and enforcement 
prerequisites to substituted compliance are satisfied.\58\ In the 
Commission's view, these conditions are structured appropriately to 
permit the use of substituted compliance only when the CNMV is 
responsible for supervising a Covered Entity's compliance with a 
relevant provision of MiFID, MiFIR, MAR, or related EU or Spanish 
requirements. Additionally, the conditions help ensure that applicable 
MiFID, MiFIR, and MAR provisions are interpreted and applied in a 
consistent manner by an entity that is party to the memorandum of 
understanding and/or other arrangement that are a prerequisite to 
substituted compliance. Accordingly, the Commission is issuing the 
conditions as proposed.\59\
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    \58\ See Business Conduct Adopting Release, 81 FR 30080.
    \59\ See para. (a)(10) of the Order.
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E. Substituted Compliance for Entity-Level and Transaction-Level 
Requirements

1. Proposed Approach
    For entity-level Exchange Act requirements,\60\ the proposed Order

[[Page 59782]]

would require a Covered Entity to choose either to apply substituted 
compliance pursuant to the proposed Order with respect to all security-
based swap business subject to the relevant Spanish and EU requirements 
or to comply directly with the Exchange Act with respect to all such 
business; a Covered Entity would not be able to choose to apply 
substituted compliance pursuant to the proposed Order for some of the 
business subject to the relevant Spanish or EU requirements and comply 
directly with the Exchange Act for another part of the business that is 
subject to the relevant Spanish and EU requirements.\61\ Additionally, 
for entity-level Exchange Act requirements, if the Covered Entity also 
has security-based swap business that is not subject to the relevant 
Spanish and/or EU requirements, the proposed Order would require the 
Covered Entity either to comply directly with the Exchange Act for that 
business or to comply with the terms of another applicable substituted 
compliance order.\62\ For transaction-level Exchange Act 
requirements,\63\ a Covered Entity may decide to apply substituted 
compliance for some of its security-based swap business and to comply 
directly with the Exchange Act (or comply with another applicable 
substituted compliance order) for other parts of its security-based 
swap business.\64\
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    \60\ Entity-level requirements relevant to the proposed Order 
relate to internal risk management, trade acknowledgment and 
verification, portfolio reconciliation and dispute resolution, 
portfolio compression, trading relationship documentation, internal 
supervision, chief compliance officers, counterparty protection, 
recordkeeping (other than requirements linked to counterparty 
protection requirements), reporting, and notification. See Exchange 
Act Release No. 78011 (June 8, 2016) 81 FR 39808, 39827 (June 17, 
2016) (``TAV Adopting Release''); Business Conduct Adopting Release, 
81 FR 30064; Exchange Act Release No. 87005 (June 19, 2019) 84 FR 
68550, 68596 (Dec. 16, 2019) (``Books and Records Adopting 
Release''); Exchange Act Adopting Release No. 87782 (Dec. 18, 2019) 
85 FR 6359, 6378 (Feb. 4, 2020) (``Risk Mitigation Adopting 
Release'').
    \61\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47672-73 and n.51.
    \62\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47673 and n.53. In the context of the EMIR 
counterparties condition in paragraph (a)(5) of the proposed Order, 
a Covered Entity would be required to choose: (1) To apply 
substituted compliance pursuant to the proposed Order-including 
compliance with paragraph (a)(5) as applicable-for a particular set 
of entity-level requirements with respect to all of its business 
that would be subject to the relevant EMIR-based requirement if the 
counterparty were the relevant type of counterparty; or (2) to 
comply directly with the Exchange Act with respect to such business.
    \63\ Transaction-level requirements relevant to the proposed 
Order are the counterparty protection requirements and the 
recordkeeping requirements related to those counterparty protection 
requirements. See Business Conduct Adopting Release, 81 FR 30065.
    \64\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47673 and n.54.
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2. Commenter Views and Final Provisions
    Commenters did not address the proposed approach to substituted 
compliance for entity-level and transaction-level requirements. The 
Commission continues to believe that the proposed scope of substituted 
compliance strikes the right balance between providing Covered Entities 
flexibility to tailor the application of substituted compliance to 
their business needs and ensuring that substituted compliance is 
consistent with the Commission's classification of the relevant 
Exchange Act requirements as either entity-level or transaction-level 
requirements. The Commission accordingly is issuing the Order with the 
proposed approach to substituted compliance for entity-level and 
transaction-level requirements.

IV. Substituted Compliance for Risk Control Requirements

A. Proposed Approach

    The CNMV Application requested substituted compliance in connection 
with risk control requirements under the Exchange Act relating to:
     Internal risk management--Internal risk management system 
requirements pursuant to Exchange Act section 15F(j)(2) and relevant 
aspects of Exchange Act rule 15Fh-3(h)(2)(iii)(I).\65\ Those provisions 
address the obligation of SBS Entities to follow policies and 
procedures reasonably designed to help manage the risks associated with 
their business activities.\66\
---------------------------------------------------------------------------

    \65\ The CNMV did not request substituted compliance in 
connection with Exchange Act rule 18a-1(f) Exchange Act rule 18a-
2(c), which include additional internal risk management system 
requirements for non-prudentially regulated SBS Entities subject to 
the Commission's capital and margin requirements.
    \66\ See Exchange Act Release No. 68071 (Oct. 18, 2012), 77 FR 
70214, 70250 (Nov. 23, 2012) (proposing capital and margin 
requirements for SBS Entities and discussing certain risk management 
requirements); Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47673 and n.56.
---------------------------------------------------------------------------

     Trade acknowledgment and verification--Trade 
acknowledgment and verification requirements pursuant to Exchange Act 
section 15F(i) and Exchange Act rule 15Fi-2.\67\ Those provisions help 
avoid legal and operational risks by requiring definitive written 
records of transactions and for procedures to avoid disagreements 
regarding the meaning of transaction terms.\68\
---------------------------------------------------------------------------

    \67\ 17 CFR 240.15Fi-2.
    \68\ See TAV Adopting Release, 81 FR 39808, 39809, 39820; 
Spanish Substituted Compliance Notice and Proposed Order, 86 FR 
47673 and n.58.
---------------------------------------------------------------------------

     Portfolio reconciliation and dispute reporting--Portfolio 
reconciliation and dispute reporting requirements pursuant to Exchange 
Act section 15F(i) and Exchange Act rule 15Fi-3.\69\ Those provisions 
require that counterparties engage in portfolio reconciliation and 
resolve discrepancies in connection with uncleared security-based swaps 
and promptly notify the Commission and applicable prudential regulators 
regarding certain valuation disputes.\70\
---------------------------------------------------------------------------

    \69\ 17 CFR 240.15Fi-3.
    \70\ See Risk Mitigation Adopting Release, 85 FR 6359, 6360-61; 
Spanish Substituted Compliance Notice and Proposed Order, 86 FR 
47673 and n.60.
---------------------------------------------------------------------------

     Portfolio compression--Portfolio compression requirements 
pursuant to Exchange Act section 15F(i) and Exchange Act rule 15Fi-
4.\71\ Those provisions require that SBS Entities have procedures 
addressing bilateral offset, bilateral compression and multilateral 
compression in connection with uncleared security-based swaps.\72\
---------------------------------------------------------------------------

    \71\ 17 CFR 240.15Fi-4.
    \72\ See Risk Mitigation Adopting Release, 85 FR 6361; Spanish 
Substituted Compliance Notice and Proposed Order, 86 FR 47673 and 
n.62.
---------------------------------------------------------------------------

     Trading relationship documentation--Trading relationship 
documentation requirements pursuant to Exchange Act section 15F(i) and 
Exchange Act rule 15Fi-5.\73\ Those provisions require that SBS 
Entities have procedures to execute written security-based swap trading 
relationship documentation with their counterparties prior to, or 
contemporaneously with, executing certain security-based swaps.\74\
---------------------------------------------------------------------------

    \73\ 17 CFR 240.15Fi-5.
    \74\ See Risk Mitigation Adopting Release, 85 FR 6361; Spanish 
Substituted Compliance Notice and Proposed Order, 86 FR 47673 and 
n.64.
---------------------------------------------------------------------------

    Taken as a whole, these risk control requirements help to promote 
market stability by mandating that SBS Entities follow practices that 
are appropriate to manage the market, credit, counterparty, 
operational, and legal risks associated with their security-based swap 
businesses. In considering conditional substituted compliance for the 
risk control portion of the CNMV Application, the Commission 
preliminarily concluded that the relevant Spanish and EU requirements 
would produce regulatory outcomes that are comparable to those 
associated with the above risk control requirements, by subjecting 
Covered Entities to risk mitigation and documentation practices that 
are appropriate to the risks associated with their security-based swap 
businesses.\75\
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    \75\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47674.
---------------------------------------------------------------------------

    Substituted compliance under the proposed Order was to be subject 
to certain additional conditions to help ensure the comparability of 
outcomes.

[[Page 59783]]

First, substituted compliance under the proposed Order was to be 
conditioned on Covered Entities being subject to the Spanish and EU 
provisions that in the aggregate establish a framework that produces 
outcomes comparable to those associated with these risk control 
requirements under the Exchange Act.\76\ Second, substituted compliance 
in connection with trading relationship documentation requirements 
would not extend to disclosures regarding legal and bankruptcy status 
that are required by Exchange Act rule 15Fi-5(b)(5) when the 
counterparty is a U.S. person.\77\ Finally, substituted compliance in 
connection with portfolio reconciliation and dispute reporting 
requirements would be conditioned on the Covered Entity providing the 
Commission with reports regarding disputes between counterparties on 
the same basis as the Covered Entity provides those reports to 
competent authorities pursuant to EU law.\78\
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    \76\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47674 and n.65.
    \77\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47674 and nn.66-67.
    \78\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47674 and nn.68-70.
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B. Commenter Views and Final Provisions

    One commenter supported the Commission's proposal to make the 
positive substituted compliance determinations in the proposed 
Order,\79\ including positive substituted compliance determinations for 
internal risk management, trade acknowledgment and verification, 
portfolio reconciliation and dispute reporting, portfolio compression 
and trading relationship documentation requirements. The Commission 
continues to conclude that, taken as a whole, relevant Spanish and EU 
requirements would produce regulatory outcomes that are comparable to 
those associated with these risk control requirements, by subjecting 
Covered Entities to risk mitigation and documentation practices that 
are appropriate to the risks associated with their security-based swap 
businesses. While the Commission recognizes certain differences between 
Spanish and EU requirements and the applicable risk control 
requirements under the Exchange Act, in the Commission's view those 
differences on balance should not preclude substituted compliance for 
these requirements, as the relevant Spanish and EU requirements taken 
as a whole help to produce comparable regulatory outcomes.\80\ 
Accordingly, the Commission is making positive substituted compliance 
determinations in connection with internal risk management, trade 
acknowledgment and verification, portfolio reconciliation and dispute 
reporting, portfolio compression and trading relationship documentation 
requirements and is issuing the risk control section of the Order as 
proposed.\81\
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    \79\ See Santander Letter at 1.
    \80\ The comparability analysis requires consideration of 
Exchange Act requirements as a whole against analogous Spanish and 
EU requirements as a whole, recognizing that U.S. and non-U.S. 
regimes may follow materially different approaches in terms of 
specificity and technical content. This ``as a whole'' approach--
which the Commission is following in lieu of requiring requirement-
by-requirement similarity--further means that the conditions to 
substituted compliance should encompass all Spanish and EU 
requirements that establish comparability with the applicable 
regulatory outcome, and helps to avoid ambiguity in the application 
of substituted compliance.
    \81\ See para. (b) of the Order.
---------------------------------------------------------------------------

    To help ensure the comparability of outcomes, and consistent with 
the proposed Order, substituted compliance for risk control 
requirements is subject to certain conditions. Substituted compliance 
for internal risk management, trade acknowledgment and verification, 
portfolio reconciliation and dispute reporting, portfolio compression 
and trading relationship documentation requirements is conditioned on 
the Covered Entity being subject to, and complying with, relevant 
Spanish and EU requirements.\82\ In addition, substituted compliance 
for trading relationship documentation does not extend to disclosures 
regarding legal and bankruptcy status that are required by Exchange Act 
rule 15Fi-5(b)(5) when the counterparty is a U.S. person.\83\ Finally, 
substituted compliance in connection with portfolio reconciliation and 
dispute reporting requirements is conditioned on the Covered Entity 
providing the Commission with reports regarding disputes between 
counterparties on the same basis as the Covered Entity provides those 
reports to competent authorities pursuant to EU law.\84\ A Covered 
Entity that is unable to comply with an applicable condition--and thus 
is not eligible to use substituted compliance for the particular set of 
Exchange Act risk control requirements related to that condition--
nevertheless may use substituted compliance for another set of Exchange 
Act requirements addressed in the Order if it complies with the 
conditions to the relevant parts of the Order.
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    \82\ See paras. (b)(1) through (5) of the Order.
    \83\ See para. (b)(5) of the Order. The Exchange Act rule 15Fi-
5, 17 CFR 240.15Fi-5, disclosures address information regarding: (1) 
The status of the SBS Entity or its counterparty as an insured 
depository institution or financial counterparty, and (2) the 
possibility that in certain circumstances the SBS Entity or its 
counterparty may be subject to the insolvency regime set forth in 
Title II of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act or the Federal Deposit Insurance Act, which may 
affect rights to terminate, liquidate, or net security-based swaps. 
See Risk Mitigation Adopting Release, 85 FR 6374. Documentation 
requirements under applicable Spanish and EU law do not address the 
disclosure of information related to insolvency procedures under 
U.S. law. However, the absence of such disclosures would not appear 
to preclude a comparable regulatory outcome when the counterparty is 
not a U.S. person, as the insolvency-related consequences that are 
the subject of the disclosure would not apply to non-U.S. 
counterparties in most cases. Moreover, EMIR Margin RTS article 2 
requires counterparties to establish, apply, and document risk 
management procedures providing for or specifying the terms of 
agreements entered into by the counterparties, including applicable 
governing law for non-centrally cleared derivatives. When 
counterparties enter into a netting or collateral exchange 
agreement, they also must perform an independent legal review of the 
enforceability of those agreements.
    \84\ See para. (b)(3)(ii) of the Order. This condition promotes 
comparability with the Exchange Act rule requiring reports to the 
Commission regarding significant valuation disputes, while 
leveraging Spanish and EU reporting provisions to avoid the need for 
Covered Entities to create additional reporting frameworks. When it 
proposed the requirement for all SBS Entities to report valuation 
disputes, the Commission recognized that valuation inaccuracies may 
lead to uncollateralized credit exposure and the potential for loss 
in the event of default. See Exchange Act Release No. 84861 (Dec. 
19, 2018), 84 FR 4614, 4621 (Feb. 15, 2019). It thus is important 
that the Commission be informed regarding valuation disputes 
affecting SBS Entities. The principal difference between the 
Exchange Act and EU valuation dispute reporting requirements 
concerns the timing of notices. Under Exchange Act rule 15Fi-3, SBS 
Entities must promptly report to the Commission valuation disputes 
in excess of $20 million that have been outstanding for three or 
five business days (depending on the counterparty type). Under EMIR 
RTS article 15(2), firms must report at least monthly, to competent 
authorities, disputes between counterparties in excess of [euro]15 
million and outstanding for at least 15 business days. The 
Commission is mindful that the EU provision does not provide for 
notice as quickly as rule 15Fi-3(c), but in the Commission's view, 
on balance this difference would not be inconsistent with the 
conclusion that the two sets of risk control requirements-taken as a 
whole-produce comparable regulatory outcomes.
---------------------------------------------------------------------------

    Under the Order, substituted compliance for risk control 
requirements (relating to internal risk management, trade 
acknowledgment and verification, portfolio reconciliation and dispute 
reporting, portfolio compression, and trading relationship 
documentation) is not subject to a condition that the Covered Entity 
apply substituted compliance for related recordkeeping requirements in 
Exchange Act rules 18a-5 and 18a-6. A Covered Entity that applies 
substituted compliance for one or more risk control requirements, but 
does not apply substituted compliance for the related recordkeeping 
requirements in

[[Page 59784]]

Exchange Act rules 18a-5 and 18a-6, will remain subject to the relevant 
provisions of Exchange Act rules 18a-5 and 18a-6. Those rules require 
the Covered Entity to make and preserve records of its compliance with 
Exchange Act risk control requirements and of its security-based swap 
activities required or governed by those requirements. A Covered Entity 
that applies substituted compliance for a risk control requirement, but 
complies directly with related recordkeeping requirements in rules 18a-
5 and 18a-6, therefore must make and preserve records of its compliance 
with the relevant conditions of the Order and of its security-based 
swap activities required or governed by those conditions and/or 
referenced in the relevant parts of rules 18a-5 and 18a-6.

V. Substituted Compliance for Internal Supervision and Compliance 
Requirements

A. Proposed Approach

    The CNMV Application requested substituted compliance in connection 
with requirements under the Exchange Act relating to:
     Internal supervision--Diligent supervision is required 
pursuant to Exchange Act rule 15Fh-3(h) and Exchange Act section 
15F(j)(5) requires conflict of interest systems and procedures. These 
provisions generally require that SBS Entities establish, maintain, and 
enforce supervisory policies and procedures that reasonably are 
designed to prevent violations of applicable law, and implement certain 
systems and procedures related to conflicts of interest. Exchange Act 
section 15F(j)(4)(A) additionally requires systems and procedures to 
obtain necessary information to perform functions required under 
section 15F.\85\
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    \85\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47674 and n.71.
---------------------------------------------------------------------------

     Chief compliance officers--Chief compliance officer 
requirements are set out in Exchange Act section 15F(k) and Exchange 
Act rule 15Fk-1.\86\ These provisions in general require that SBS 
Entities designate individuals with the responsibility and authority to 
establish, administer, and review compliance policies and procedures; 
to resolve conflicts of interest; and to prepare and certify an annual 
compliance report to the Commission.\87\
---------------------------------------------------------------------------

    \86\ 17 CFR 240.15Fk-1.
    \87\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47674 and n.73.
---------------------------------------------------------------------------

     Antitrust requirements--Additional requirements related to 
antitrust prohibitions specified by Exchange Act section 15F(j)(6).\88\
---------------------------------------------------------------------------

    \88\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47674 and n.74. Section 15F(j)(6) prohibits firms from 
adopting any process or taking any action that results in any 
unreasonable restraint of trade or imposing any material 
anticompetitive burden on trading or clearing.
---------------------------------------------------------------------------

    Taken as a whole, these internal supervision, chief compliance 
officer, and additional Exchange Act section 15F(j) requirements help 
to promote SBS Entities' use of structures, processes, and responsible 
personnel reasonably designed to promote compliance with applicable 
law; to identify and cure instances of non-compliance; and to manage 
conflicts of interest. In considering conditional substituted 
compliance for this portion of the CNMV Application, the Commission 
preliminarily concluded that the relevant Spanish and EU requirements 
would produce regulatory outcomes that are comparable to those 
associated with Exchange Act internal supervision \89\ and chief 
compliance officer requirements by providing that Covered Entities have 
structures and processes that reasonably are designed to promote 
compliance with applicable law and to identify and cure instances of 
non-compliance and manage conflicts of interest.\90\
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    \89\ The proposed Order would provide for substituted compliance 
in connection with internal supervision provisions of Exchange Act 
rule 15Fh-3(h), the requirement in Exchange Act section 15F(j)(4)(A) 
to have systems and procedures to obtain necessary information to 
perform functions required under Exchange Act section 15F; and the 
conflict of interest provisions of Exchange Act section 15F(j)(5). 
The internal supervision portion of the proposed Order did not 
extend to the portions of rule 15Fh-3(h) that mandate supervisory 
policies and procedures in connection with: The internal risk 
management provisions of Exchange Act section 15F(j)(2) (which were 
addressed by paragraph (b)(1) of the proposed Order in connection 
with internal risk management); the information-related provisions 
of Exchange Act sections 15F(j)(3) and (j)(4)(B) (for which 
substituted compliance is not available); or the antitrust 
provisions of Exchange Act section 15F(j)(6) (for which the 
Commission did not propose to provide substituted compliance). See 
Spanish Substituted Compliance Notice and Proposed Order, 86 FR 
47675 n.75.
    \90\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47675.
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    Substituted compliance under the proposed Order was to be subject 
to certain conditions to help ensure the comparability of outcomes. 
First, substituted compliance for internal supervision and chief 
compliance officer requirements under the proposed Order was to be 
conditioned on Covered Entities being subject to the Spanish and EU 
requirements that in the aggregate establish a framework that produces 
outcomes comparable to those associated with these internal 
supervision, chief compliance officer, conflict of interest, and 
information-related requirements under the Exchange Act.\91\ Second, 
substituted compliance in connection with internal supervision 
requirements would be conditioned on Covered Entities complying with 
applicable Spanish and EU internal supervision requirements as if those 
provisions also require the Covered Entity to comply with applicable 
requirements under the Exchange Act and the other applicable conditions 
of the proposed Order.\92\ This condition was intended to reflect that, 
even with substituted compliance, Covered Entities still directly would 
be subject to a number of requirements under the Exchange Act and to 
conditions of the Order, all of which fall outside the ambit of Spanish 
and EU internal supervision requirements.\93\ Finally, for similar 
reasons, substituted compliance in connection with chief compliance 
officer requirements would be subject to the conditions \94\ that

[[Page 59785]]

compliance reports required pursuant to Commission Delegated Regulation 
(EU) 2017/565 (``MiFID Org Reg'') article 22(2)(c) must: (1) Be 
provided to the Commission at least annually and in the English 
language; (2) include a certification signed by the chief compliance 
officer or senior officer of the Covered Entity that, to the best of 
the certifier's knowledge and reasonable belief and under penalty of 
law, the report is accurate and complete in all material respects; (3) 
address the Covered Entity's compliance with applicable requirements 
under the Exchange Act and other applicable conditions of the proposed 
Order; \95\ (4) be provided to the Commission no later than 15 days 
following the earlier of the submission of the report to the Covered 
Entity's management body or the time the report is required to be 
submitted to the management body; \96\ and (5) together cover the 
entire period that the Covered Entity's annual compliance report 
referenced in Exchange Act section 15F(k)(3) and Exchange Act rule 
15Fk-1(c) would be required to cover.\97\
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    \91\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47676 and n.86.
    \92\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47675 and n.77. In other words, the proposed Order 
would require that the Covered Entity's supervisory and compliance 
program cover applicable requirements under the Exchange Act and 
other applicable conditions of the Order.
    \93\ While the Spanish and EU regulatory framework in general 
reasonably appears to promote Covered Entities' compliance with 
applicable Spanish and EU laws, those requirements do not appear to 
promote Covered Entities' compliance with requirements under the 
Exchange Act that are not subject to substituted compliance, or to 
promote Covered Entities' compliance with the applicable conditions 
to the proposed Order. These residual Exchange Act requirements 
could, for example, relate to requirements for which substituted 
compliance is not available, requirements for which the Order does 
not make a positive substituted compliance determination, security-
based swap business for which the Covered Entity is unable to 
satisfy the conditions of the Order, and/or requirements or 
security-based swap business for which the Covered Entity decides 
not to use substituted compliance. The condition was designed to 
allow Covered Entities to use their existing internal supervision 
and compliance frameworks to comply with the relevant Exchange Act 
requirements and proposed Order conditions, rather than having to 
establish separate special-purpose internal supervision frameworks.
    \94\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47675-76 and nn.80-85. Although certain Spanish and EU 
requirements address a Covered Entity's use of internal compliance 
reports, those requirements do not require it to submit compliance 
reports to the Commission. These conditions would allow a Covered 
Entity to leverage the compliance reports that it otherwise must 
produce, by extending those reports to address compliance with the 
conditions of the proposed Order. The Commission stated that, in 
practice, a Covered Entity may satisfy these conditions by 
identifying relevant Exchange Act requirements and proposed Order 
conditions and reporting on the implementation and effectiveness of 
its controls with regard to compliance with those requirements and 
conditions.
    \95\ MiFID Org Reg article 22(2)(c) particularly requires that a 
Covered Entity's compliance function ``report to the management 
body, on at least an annual basis, on the implementation and 
effectiveness of the overall control environment for investment 
services and activities, on the risks that have been identified and 
on the complaints-handling reporting as well as remedies undertaken 
or to be undertaken[.]'' Under the proposed condition, those 
reports, as submitted to the Commission and the Covered Entity's 
management body, also would address the Covered Entity's compliance 
with applicable Exchange Act requirements and other applicable 
conditions of the proposed Order (in addition to addressing the 
Covered Entity's compliance with applicable Spanish and EU 
provisions).
    \96\ This deadline was intended to promote timely notice of 
compliance matters in a manner comparable to Exchange Act 
requirements, while also accounting for the annual deadline required 
under MiFID Org Reg article 22(2)(c) as well as the possibility that 
the Covered Entity may submit reports ahead of this annual deadline.
    \97\ This requirement would prevent a Covered Entity from 
notifying the Commission just prior to the due date of its annual 
Exchange Act compliance report that it will use substituted 
compliance for chief compliance officer requirements and then 
providing the Commission a Spanish compliance report that covers 
only a part of the year that would have been covered in the Exchange 
Act report.
---------------------------------------------------------------------------

    Finally, the Commission preliminarily concluded that allowing an 
alternative means of compliance with Exchange Act antitrust 
requirements would not lead to comparable outcomes, and the proposed 
Order did not provide for substituted compliance in connection with 
those requirements.\98\
---------------------------------------------------------------------------

    \98\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47676 and n.86.
---------------------------------------------------------------------------

B. Commenter Views and Final Provisions

    One commenter supported the Commission's proposal to make the 
positive substituted compliance determinations in the proposed 
Order,\99\ including positive substituted compliance determinations for 
internal supervision and chief compliance officer requirements. The 
Commission continues to conclude that, taken as a whole, relevant 
Spanish and EU requirements would produce regulatory outcomes that are 
comparable to those associated with Exchange Act internal supervision 
and chief compliance officer requirements by providing that Covered 
Entities have structures and processes that reasonably are designed to 
promote compliance with applicable law and to identify and cure 
instances of non-compliance and manage conflicts of interest. While the 
Commission recognizes certain differences between Spanish and EU 
requirements and the applicable internal supervision and chief 
compliance officer requirements under the Exchange Act, in the 
Commission's view those differences on balance should not preclude 
substituted compliance for these requirements, as the relevant Spanish 
and EU requirements taken as a whole help to produce comparable 
regulatory outcomes by requiring Covered Entities to have structures 
and processes reasonably designed to promote compliance with applicable 
law, identify and cure instances of non-compliance, and manage 
conflicts of interest. Accordingly, the Commission is making positive 
substituted compliance determinations in connection with internal 
supervision and chief compliance officer requirements and is issuing 
the internal supervision and compliance section of the Order as 
proposed.\100\
---------------------------------------------------------------------------

    \99\ See Santander Letter at 1.
    \100\ See para. (c) of the Order.
---------------------------------------------------------------------------

    To help ensure the comparability of outcomes, and consistent with 
the proposed Order, substituted compliance for internal supervision and 
chief requirements is subject to certain conditions. Substituted 
compliance for both sets of requirements is conditioned on the Covered 
Entity being subject to, and complying with, relevant Spanish and EU 
requirements.\101\ In addition, substituted compliance for internal 
supervision requirements (1) is conditioned on the Covered Entity's 
compliance with applicable Spanish and EU internal supervision 
requirements as if those provisions also require the Covered Entity to 
comply with applicable requirements under the Exchange Act and the 
other applicable conditions of the proposed Order \102\ and (2) does 
not extend to certain specified internal supervision requirements.\103\ 
Finally, substituted compliance in connection with chief compliance 
officer requirements is subject to the conditions that compliance 
reports required pursuant to MiFID Org Reg article 22(2)(c) must: (1) 
Be provided to the Commission at least annually and in the English 
language; (2) include a certification \104\ signed by the chief 
compliance officer or senior officer of the Covered Entity that, to the 
best of the certifier's knowledge and reasonable belief and under 
penalty of law, the report is accurate and complete in all material 
respects; (3) address the Covered Entity's compliance with applicable 
requirements under the Exchange Act and other applicable conditions of 
the proposed Order; (4) be provided to the Commission no later than 15 
days \105\ following the earlier of

[[Page 59786]]

the submission of the report to the Covered Entity's management body or 
the time the report is required to be submitted to the management body; 
and (5) together cover the entire period that the Covered Entity's 
annual compliance report referenced in Exchange Act section 15F(k)(3) 
and Exchange Act rule 15Fk-1(c) would be required to cover.\106\ A 
Covered Entity that is unable to comply with an applicable condition--
and thus is not eligible to use substituted compliance for the 
particular set of Exchange Act risk control requirements related to 
that condition--nevertheless may use substituted compliance for another 
set of Exchange Act requirements addressed in the Order if it complies 
with the conditions to the relevant parts of the Order.
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    \101\See paras. (c)(1) through (3) of the Order.
    \102\ See paras. (c)(1)(ii) and (c)(4) of the Order. The Order 
provides that the Covered Entity must comply with relevant Spanish 
and EU provisions as if those provisions address applicable 
conditions of the Order connected to requirements for which the 
Covered Entity is relying on substituted compliance. That part of 
the condition does not apply to parts of the Order for which the 
Covered Entity does not rely on substituted compliance. In other 
words, a Covered Entity's reliance on substituted compliance under 
para. (c)(4) requires that the Covered Entity's supervisory and 
compliance programs cover applicable provisions under the Exchange 
Act and other applicable conditions of the Order.
    \103\ See para. (c)(1)(iii) of the Order. In particular, the 
Order does not extend to the portions of rule 15Fh-3(h) that mandate 
supervisory policies and procedures in connection with: The internal 
risk management provisions of Exchange Act section 15F(j)(2) (which 
are addressed by paragraph (b)(1) of the Order in connection with 
internal risk management); the information-related provisions of 
Exchange Act sections 15F(j)(3) and (j)(4)(B) (for which substituted 
compliance is not available); or the antitrust provisions of 
Exchange Act section 15F(j)(6) (for which the Commission is not 
making a positive substituted compliance determination).
    \104\ The Commission recognizes that Covered Entities preparing 
multiple Spanish compliance reports each year may find it difficult 
to submit to those reports to the Commission throughout the year, 
each with a chief compliance officer or senior officer certification 
and a section addressing the Covered Entity's compliance with U.S. 
requirements. However, on balance the Commission continues to 
believe that these elements are necessary to achieve a regulatory 
outcome comparable to the Exchange Act.
    \105\ The Commission continues to believe that it is appropriate 
for the Commission to receive compliance reports shortly after their 
submission to the management body. Providing these reports to the 
Commission near the times that the Covered Entity submits them to 
the management body also will better align with the Spanish and EU 
regulatory framework, which permits a Covered Entity to prepare and 
submit to the management body multiple compliance reports throughout 
the year. The Commission views 15 days as providing a reasonable 
time to translate reports, if needed, and convey them to the 
Commission.
    \106\ See para. (c)(2)(ii) of the Order. The Commission 
continues to believe that these conditions are necessary to promote 
comparable regulatory outcomes, particularly in light of the 
granular approach to substituted compliance, and to ensure that the 
compliance report covers applicable Exchange Act requirements and 
proposed Order conditions if the Covered Entity uses substituted 
compliance for chief compliance officer requirements, whether or not 
the Covered Entity relies on substituted compliance for internal 
supervision.
---------------------------------------------------------------------------

    Under the Order, substituted compliance for internal supervision 
and chief compliance officer requirements is not subject to a condition 
that the Covered Entity apply substituted compliance for related 
recordkeeping requirements in Exchange Act rules 18a-5 and 18a-6. A 
Covered Entity that applies substituted compliance for internal 
supervision and/or chief compliance officer requirements, but does not 
apply substituted compliance for the related recordkeeping requirements 
in Exchange Act rules 18a-5 and 18a-6, will remain subject to the 
relevant provisions of Exchange Act rules 18a-5 and 18a-6. Those rules 
require the Covered Entity to make and preserve records of its 
compliance with Exchange Act internal supervision and chief compliance 
officer requirements and of its security-based swap activities required 
or governed by those requirements. A Covered Entity that applies 
substituted compliance for internal supervision and/or chief compliance 
officer requirements, but complies directly with related recordkeeping 
requirements in rules 18a-5 and 18a-6, therefore must make and preserve 
records of its compliance with the relevant conditions of the Order and 
of its security-based swap activities required or governed by those 
conditions and/or referenced in the relevant parts of rules 18a-5 and 
18a-6.
    Finally, for the reasons discussed in the proposed Order,\107\ the 
Order does not extend to antitrust provisions under the Exchange Act.
---------------------------------------------------------------------------

    \107\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47676 and n.86. The Commission is not taking any 
position regarding the applicability of the section 15F(j)(6) 
antitrust prohibitions in the cross-border context. Non-U.S. SBS 
Entities should assess the applicability of those prohibitions to 
their security-based swap businesses.
---------------------------------------------------------------------------

VI. Substituted Compliance for Counterparty Protection Requirements

A. Proposed Approach

    The CNMV requested substituted compliance in connection with 
counterparty protection requirements under the Exchange Act relating 
to:
     Disclosure of material risks and characteristics and 
material incentives or conflicts of interest--Exchange Act rule 15Fh-
3(b) requires that SBS Entities disclose to certain counterparties to a 
security-based swap certain information about the material risks and 
characteristics of the security-based swap, as well as material 
incentives or conflicts of interest that the SBS Entity may have in 
connection with the security-based swap. These provisions address the 
need for security-based swap market participants to have information 
that is sufficient to make informed decisions regarding potential 
transactions involving particular counterparties and particular 
financial instruments.\108\
---------------------------------------------------------------------------

    \108\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47676 and n.87.
---------------------------------------------------------------------------

     ``Know your counterparty''--Exchange Act rule 15Fh-3(e) 
requires a security-based swap dealer to establish, maintain, and 
enforce written policies and procedures to obtain and retain certain 
information regarding a counterparty that is necessary for conducting 
business with that counterparty. This provision accounts for the need 
that SBS Entities obtain essential counterparty information necessary 
to promote effective compliance and risk management.\109\
---------------------------------------------------------------------------

    \109\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47676 and n.88.
---------------------------------------------------------------------------

     Suitability--Exchange Act rule 15Fh-3(f) requires a 
security-based swap dealer that recommends to certain counterparties a 
security-based swap or trading strategy involving a security-based 
swap, to undertake reasonable diligence to understand the potential 
risks and rewards associated with the recommendation and to have a 
reasonable basis to believe that the recommendation is suitable for the 
counterparty. This provision accounts for the need to guard against 
security-based swap dealers making unsuitable recommendations.\110\
---------------------------------------------------------------------------

    \110\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47676 and nn.89-90.
---------------------------------------------------------------------------

     Fair and balanced communications--Exchange Act rule 15Fh-
3(g) requires that SBS Entities communicate with counterparties in a 
fair and balanced manner based on principles of fair dealing and good 
faith. These provisions promote complete and honest communications as 
part of SBS Entities' security-based swap businesses.\111\
---------------------------------------------------------------------------

    \111\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47676 and n.91.
---------------------------------------------------------------------------

     Daily mark disclosure--Exchange Act rule 15Fh-3(c) 
requires that SBS Entities provide daily mark information to certain 
counterparties. These provisions address the need for market 
participants to have effective access to daily mark information 
necessary to manage their security-based swap positions.\112\
---------------------------------------------------------------------------

    \112\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47676 and n.92.
---------------------------------------------------------------------------

     Clearing rights disclosure--Exchange Act rule 15Fh-3(d) 
requires that SBS Entities provide certain counterparties with 
information regarding clearing rights under the Exchange Act.\113\
---------------------------------------------------------------------------

    \113\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47676 and n.93. Exchange Act section 3C(g)(5) provides 
certain rights for counterparties to select the clearing agency at 
which a security-based swap is cleared. For all security-based swaps 
that an SBS Entity enters into with certain counterparties, the 
counterparty has the sole right to select the clearing agency at 
which the security-based swap is cleared. For security-based swaps 
that are not subject to mandatory clearing (pursuant to Exchange Act 
sections 3C(a) and (b)) and that an SBS Entity enters into with 
certain counterparties, the counterparty also may elect to require 
clearing of the security-based swap. Substituted compliance is not 
available in connection with these provisions.
---------------------------------------------------------------------------

    Taken as a whole, the counterparty protection requirements under 
section 15F of the Exchange Act help to ``bring professional standards 
of conduct to, and increase transparency in, the security-based swap 
market and to require [SBS Entities] to treat parties to these 
transactions fairly.'' \114\ The

[[Page 59787]]

proposed Order provided for conditional substituted compliance in 
connection with disclosure of material risks and characteristics, 
disclosure of material incentives or conflicts of interest, ``know your 
counterparty,'' suitability, fair and balanced communications, and 
daily mark disclosure requirements.\115\ In proposing to provide 
conditional substituted compliance for these counterparty protection 
requirements, the Commission preliminarily concluded that the relevant 
Spanish and EU requirements produce regulatory outcomes that are 
comparable to these requirements under Exchange Act section 15F(h), by 
subjecting Covered Entities to obligations that promote standards of 
professional conduct, transparency, and the fair treatment of parties.
---------------------------------------------------------------------------

    \114\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47677 and n.94; Business Conduct Adopting Release, 81 
FR 30065. For non-U.S. SBS Entities, the counterparty protection 
requirements under Exchange Act section 15F(h) apply only to the SBS 
Entity's transactions with U.S. counterparties (apart from certain 
transactions conducted through a foreign branch of the U.S. 
counterparty), or to transactions arranged, negotiated, or executed 
by personnel located in a U.S. branch or office. See Exchange Act 
rule 3a71-3(c), 17 CFR 240.3a71-3(c) (exception from business 
conduct requirements for a security-based swap dealer's ``foreign 
business''); see also Exchange Act rule 3a71-3(a)(3), (8) and (9) 
(definitions of ``transaction conducted through a foreign branch,'' 
``U.S. business'' and ``foreign business'').
    \115\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47677.
---------------------------------------------------------------------------

    As proposed, substituted compliance for these requirements would be 
subject to certain conditions to help ensure the comparability of 
outcomes. First, under the proposed Order, substituted compliance for 
disclosure of material risks and characteristics, disclosure of 
material incentives or conflicts of interest, ``know your 
counterparty,'' suitability, and fair and balanced communications 
requirements would be conditioned on Covered Entities being subject to, 
and complying with, relevant Spanish and EU requirements.\116\ Second, 
the proposed Order additionally would condition substituted compliance 
for suitability requirements on the counterparty being a ``professional 
client'' as defined in MiFID (rather than a ``retail client'' or an 
elective ``professional client'' \117\) and not a ``special entity'' as 
defined in Exchange Act section 15F(h)(2)(C) and Exchange Act rule 
15Fh-2(d).\118\ The Commission continues to believe that, absent such a 
condition the MiFID-based suitability requirements would not be 
expected to produce a counterparty protection outcome that is 
comparable with the outcome produced by the suitability requirements 
under the Exchange Act.\119\ Finally, in the proposed Order the 
Commission preliminarily viewed certain types of EU daily portfolio 
reconciliation requirements as comparable to Exchange Act daily mark 
disclosure requirements.\120\ These daily portfolio reconciliation 
requirements apply to portfolios of a financial counterparty or a non-
financial counterparty subject to the clearing obligation in EMIR in 
which counterparties have 500 or more OTC derivatives contracts 
outstanding with each other.\121\ The Commission preliminarily viewed 
EU portfolio reconciliation requirements for other types of portfolios, 
which may be reconciled less frequently than each business day or may 
not require disclosure to counterparties, as not comparable to Exchange 
Act daily mark requirements.\122\ Accordingly, the proposed Order would 
condition substituted compliance for daily mark requirements on the 
Covered Entity being required to reconcile, and in fact reconciling, 
the portfolio containing the relevant security-based swap on each 
business day pursuant to relevant EU requirements.\123\
---------------------------------------------------------------------------

    \116\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47677 and nn.97-99.
    \117\ Annex II of MiFID describes which clients are 
``professional clients.'' Section I of Annex II describes the types 
of clients considered to be professional clients unless the client 
elects non-professional treatment; these clients are per se 
professional clients. Section II of Annex II describes the types of 
clients who may be treated as professional clients on request; these 
clients are elective professional clients. See MiFID Annex II. 
Retail clients are those that are not professional clients. See 
MiFID article 4(1)(11).
    \118\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47677.
    \119\ The Commission recognizes that Exchange Act rules permit 
security-based swap dealers, when making a recommendation to an 
``institutional counterparty,'' to satisfy some elements of the 
suitability requirement if the security-based swap dealer reasonably 
determines that the counterparty or its agent is capable of 
independently evaluating relevant investment risks, the counterparty 
or its agent represents in writing that it is exercising independent 
judgment in evaluating recommendations, and the security-based swap 
dealer discloses to the counterparty that it is acting as 
counterparty and is not undertaking to assess the suitability of the 
recommendation for the counterparty. See Exchange Act rule 15Fh-
3(f)(2). However, the institutional counterparties to whom this 
alternative applies are only a subset of the ``professional 
clients'' to whom more narrowly tailored suitability requirements 
apply under MiFID. The institutional counterparty alternative under 
the Exchange Act remains available, in accordance with its terms, 
for recommendations that are not eligible for, or for which a 
Covered Entity does not rely on, substituted compliance under the 
Order.
    \120\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47677-78.
    \121\ See EMIR RTS article 13(3)(a)(i); EMIR article 10.
    \122\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47677-78.
    \123\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47677-78. This approach would avoid reliance on Spanish 
and EU trade reporting or mark-to-market (or mark-to-model) 
requirements. The Spanish and EU mark-to-market (or mark-to-model) 
requirements direct certain types of derivatives counterparties to 
mark-to-market (or mark-to-model) uncleared transactions each day 
but do not require disclosure of those marks to counterparties. 
Moreover, though Spanish and EU trade reporting requirements direct 
certain derivatives counterparties to report to a EU trade 
repository updated daily valuations for each OTC derivative 
contract, in practice U.S. counterparties may encounter challenges 
when attempting to access daily marks reported to multiple EU trade 
repositories with which they may not otherwise have business 
relationships. In addition, the information may be less current, 
given the time necessary for reporting and for the trade repository 
to make the information available.
---------------------------------------------------------------------------

    The proposed Order would not provide substituted compliance in 
connection with Exchange Act requirements for SBS Entities to disclose 
a counterparty's clearing rights under Exchange Act section 
3C(g)(5).\124\ The CNMV Application cited certain EU provisions related 
to a counterparty's clearing rights in the European Union. However, 
those provisions do not require disclosure of Exchange Act section 
3C(g)(5) clearing rights, and the Commission preliminarily viewed the 
EU clearing provisions as not comparable to Exchange Act clearing 
rights disclosure requirements.\125\
---------------------------------------------------------------------------

    \124\ Though the requirement to disclose a counterparty's 
Exchange Act section 3C(g)(5) clearing rights is eligible for 
substituted compliance, the section 3C(g)(5) clearing rights 
themselves are not.
    \125\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47678 and n.102.
---------------------------------------------------------------------------

B. Commenter Views and Final Provisions

    One commenter supported the Commission's proposal to make the 
positive substituted compliance determinations in the proposed 
Order,\126\ including positive substituted compliance determinations 
for disclosure of material risks and characteristics, disclosure of 
material incentives or conflicts of interest, ``know your 
counterparty,'' suitability, fair and balanced communications, and 
daily mark disclosure requirements. The Commission continues to 
conclude that, taken as a whole, relevant Spanish and EU requirements 
would produce regulatory outcomes that are comparable to those 
associated with these counterparty protection requirements, by 
subjecting Covered Entities to obligations that promote standards of 
professional conduct, transparency, and the fair treatment of parties. 
The Commission recognizes that there are certain differences between 
relevant Spanish and EU requirements and Exchange Act disclosure, 
``know your counterparty,'' suitability, and communications 
requirements, but in the Commission's view those differences, when 
coupled with the conditions in the proposed Order, are not so material 
as to be inconsistent with substituted compliance within the requisite 
outcomes-oriented framework. Accordingly, the Commission is making

[[Page 59788]]

positive substituted compliance determinations in connection with 
disclosure of material risks and characteristics, disclosure of 
material incentives or conflicts of interest, ``know your 
counterparty,'' suitability, fair and balanced communications, and 
daily mark disclosure requirements.\127\ The Commission is amending the 
substituted compliance determination for ``know your counterparty'' 
requirements for the reasons discussed below, and is issuing the 
remainder of the counterparty protection section of the Order as 
proposed.
---------------------------------------------------------------------------

    \126\ See Santander Letter at 1.
    \127\ See para. (d) of the Order.
---------------------------------------------------------------------------

    The Commission is amending paragraph (d)(3) of the Order to replace 
the requirements of Directive (EU) 2015/849 (``MLD'') and the Spanish 
Anti-Money Laundering Act, Law 10/2010, of April 28 (``SMLA'') with 
provisions of MiFID, MiFID Org Reg, SSMA and Royal Decree 217/2008, of 
February 15 (``RD 217/2008'').\128\ Exchange Act rule 15Fh-3(e)(3) is 
one of three prongs of the Exchange Act ``know your counterparty 
requirements,'' and requires a security-based swap dealer to establish, 
maintain, and enforce written policies and procedures to obtain and 
retain a record of information regarding the authority of any person 
acting for its counterparty. Before making a positive substituted 
compliance determination, Exchange Act rule 3a71-6 requires the 
Commission to determine that foreign requirements are comparable to the 
otherwise applicable Exchange Act requirements, after accounting for 
factors such as the effectiveness of the supervisory compliance program 
administered, and the enforcement authority exercised, by the foreign 
authority in respect of the relevant requirements, as well as to enter 
into a memorandum of understanding and/or other arrangement with the 
relevant foreign financial regulatory authority or authorities 
addressing supervisory and enforcement cooperation and other matters 
arising under the substituted compliance determination.\129\ The 
customer due diligence provisions in the proposed Order's MLD and SMLA 
requirements are relevant to the Exchange Act ``know your 
counterparty'' requirements relating to records of the authority of a 
person acting on behalf of the counterparty. However, in Spain 
supervision and enforcement of these MLD and SMLA requirements are 
within the jurisdiction of the Servicio Ejecutivo de la Comisi[oacute]n 
de Prevenci[oacute]n del Blanqueo de Capitales e Infracciones 
Monetarias (``SEPBLAC'') and the Comisi[oacute]n de Prevenci[oacute]n 
del Blanqueo de Capitales e Infracciones Monetarias (``COPBLAC''). The 
CNMV and the Bank of Spain do work closely with the SEPBLAC and 
COPBLAC, but the substituted compliance memorandum of understanding 
between the Commission and the CNMV and the Bank of Spain, finalized 
after publication of the Spanish Substituted Compliance Notice and 
Proposed Order, does not provide for ongoing sharing of supervisory and 
enforcement information regarding these MLD and SMLA requirements, as 
neither the SEPBLAC nor the COPBLAC is a party to the memorandum of 
understanding. Other requirements based on MiFID, as applied by the 
CNMV, are, however, comparable to the Exchange Act requirement to 
establish, maintain, and enforce written policies and procedures to 
obtain and retain a record of information regarding the authority of 
any person acting for its counterparty.\130\ The CNMV, rather than 
SEPBLAC or COPBLAC, is responsible for supervision and enforcement of 
these MiFID-based requirements and the memorandum of understanding 
would provide for ongoing sharing of supervisory and enforcement 
information regarding these requirements. Accordingly, the Commission 
is replacing the MLD and SMLA requirements listed in paragraph (d)(3) 
of the proposed Order with these MiFID-based requirements.
---------------------------------------------------------------------------

    \128\ See para. (d)(3) of the Order. Paragraph (d)(3) of 
proposed Order cited the following MLD-based requirements: MLD 
articles 11 and 13; SMLA articles 3(1) and (2), 4, 5, 6, 7(1) 
through (4), 7(7), 7(8), and 8; MLD articles 8(3) and 8(4)(a) as 
applied to internal policies, controls and procedures regarding 
recordkeeping of customer due diligence activities; and SMLA article 
26 as applied to policies and procedures regarding recordkeeping of 
customer due diligence activities. The Commission is replacing these 
requirements with MiFID article 16(6), MiFID Org Reg articles 72, 
74, 75, and applicable parts of Annex I, SSMA article 194(1), and RD 
217/2008 article 32(1) and (10).
    \129\ See Parts II.B.1 and II.B.2, supra.
    \130\ MiFID article 16(6), implemented in Spain in SSMA article 
194(1) and RD 217/2008 article 32(1) and (10), requires a Covered 
Entity to arrange for records to be kept of all services, 
activities, and transactions undertaken by it that are sufficient to 
enable the CNMV to fulfill its supervisory and enforcement mandates, 
and in particular to determine that the Covered Entity has complied 
with all obligations including those with respect to clients or 
potential clients and to the integrity of the market. MiFID Org Reg 
articles 74 and 75 require Covered Entities to record and keep at 
the CNMV's disposal certain information about client orders and 
decisions to deal. Annex IV of MiFID Org Reg describes that required 
client information and includes a requirement to make a record of 
the ``name and designation of any relevant person acting on behalf 
of the client.'' The CNMV commented that this requirement to make a 
record regarding persons acting on behalf of the client ``implies 
that the investment firm or credit institution for internal control 
reasons, must obtain documentation of the powers/authorization of 
the person to be represented which is verifiable y the CNMV.'' See 
Memorandum of Correspondence with Santiago Yraola, Deputy Director 
of International Affairs, CNMV, dated Sept. 24, 2021 (``CNMV 
Memorandum''), at 2. Moreover, the CNMV confirmed that in 
supervising compliance with this requirement, it requires Covered 
Entities to provide records of the power of attorney or public deed 
establishing the authority of client representatives. See CNMV 
Memorandum at 2. Finally, MiFID Org Reg article 72 and Annex I 
require the Covered Entity to maintain records in the medium, form, 
and format that allow the CNMV to access the records readily and to 
easily ascertain any amendments, and that make it impossible to 
manipulate or alter the records.
---------------------------------------------------------------------------

    To help ensure the comparability of outcomes, and consistent with 
the proposed Order, substituted compliance for these counterparty 
protection requirements is subject to certain conditions. First, 
substituted compliance for disclosure of material risks and 
characteristics,\131\ disclosure of material incentives or conflicts of 
interest,\132\ ``know your counterparty,'' \133\ suitability,\134\ and 
fair and balanced communications \135\ requirements is conditioned on 
Covered Entities being subject to, and complying with, relevant Spanish 
and EU requirements. Second, substituted compliance for suitability 
requirements is conditioned on the counterparty being a ``professional 
client'' as defined in MiFID (rather than a ``retail client'' or an 
elective ``professional client'') and not a ``special entity'' as 
defined in Exchange Act section 15F(h)(2)(C) and Exchange Act rule 
15Fh-2(d).\136\ Third, substituted compliance for daily mark disclosure 
requirements is conditioned on the Covered Entity being required to 
reconcile, and in fact reconciling, the portfolio containing the 
relevant security-based swap on each business day pursuant to relevant 
EU requirements.\137\ A Covered Entity that is unable to comply with an 
applicable condition--and thus is not eligible to use substituted 
compliance for the particular set of Exchange Act counterparty 
protection requirements related to that condition--nevertheless may use 
substituted compliance for another set of Exchange Act requirements 
addressed in the Order if

[[Page 59789]]

it complies with the conditions to the relevant parts of the Order.
---------------------------------------------------------------------------

    \131\ See para. (d)(1) of the Order.
    \132\ See para. (d)(2) of the Order.
    \133\ See para. (d)(3) of the Order.
    \134\ See para. (d)(4)(i) of the Order.
    \135\ See para. (d)(5) of the Order.
    \136\ See para. (d)(4)(ii) of the Order.
    \137\ See para. (d)(6) of the Order. A Covered Entity must be 
required to reconcile, and in fact reconcile, the portfolio 
containing the security-based swap for which substituted compliance 
is used, on each business day pursuant to EMIR articles 11(1)(b) and 
11(2) and EMIR RTS article 13. A Covered Entity may not use 
substituted compliance for daily mark disclosure requirements if the 
relevant security-based swap is in a portfolio that these EU 
requirements do not require to be reconciled on each business day.
---------------------------------------------------------------------------

    Under the Order, substituted compliance for counterparty protection 
requirements (relating to disclosure of information regarding material 
risks and characteristics, disclosure of information regarding material 
incentives or conflicts of interest, ``know your counterparty,'' 
suitability, fair and balanced communications and daily mark 
disclosure) is not subject to a condition that the Covered Entity apply 
substituted compliance for related recordkeeping requirements in 
Exchange Act rules 18a-5 and 18a-6. A Covered Entity that applies 
substituted compliance for one or more counterparty protection 
requirements, but does not apply substituted compliance for the related 
recordkeeping requirements in Exchange Act rules 18a-5 and 18a-6, will 
remain subject to the relevant provisions of Exchange Act rules 18a-5 
and 18a-6. Those rules require the Covered Entity to make and preserve 
records of its compliance with Exchange Act counterparty protection 
requirements and of its security-based swap activities required or 
governed by those requirements. A Covered Entity that applies 
substituted compliance for a counterparty protection requirement, but 
complies directly with related recordkeeping requirements in rules 18a-
5 and 18a-6, therefore must make and preserve records of its compliance 
with the relevant conditions of the Order and of its security-based 
swap activities required or governed by those conditions and/or 
referenced in the relevant parts of rules 18a-5 and 18a-6.
    Finally, for the reasons discussed in the proposed Order, the Order 
does not extend to clearing rights disclosure provisions under the 
Exchange Act.\138\
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    \138\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47678.
---------------------------------------------------------------------------

VII. Substituted Compliance for Recordkeeping, Reporting, Notification, 
and Securities Count Requirements

A. CNMV Request and Associated Analytic Considerations

    The CNMV Application in part requested substituted compliance for 
requirements applicable to SBS Entities with a prudential regulator 
under the Exchange Act relating to:
     Record Making--Exchange Act rule 18a-5 requires prescribed 
records to be made and kept current.\139\
---------------------------------------------------------------------------

    \139\ 17 CFR 240.18a-5. The CNMV Application discusses Spanish 
and EU recordmaking requirements. See CNMV Application Appendix B, 
Category: Recordkeeping and Reporting Requirements; Subcategory: 
Record creation, at 1-27, 55-57.
---------------------------------------------------------------------------

     Record Preservation--Exchange Act rule 18a-6 requires 
preservation of records.\140\
---------------------------------------------------------------------------

    \140\ 17 CFR 240.18a-6. The CNMV Application discusses Spanish 
and EU record preservation requirements. See CNMV Application 
Appendix B, Category: Recordkeeping and Reporting; Subcategory: 
Record Preservation at 28-58.
---------------------------------------------------------------------------

     Reporting--Exchange Act rule 18a-7 requires certain 
reports.\141\
---------------------------------------------------------------------------

    \141\ 17 CFR 240.18a-7. The CNMV Application discusses Spanish 
and EU requirements that address firms' obligations to make certain 
reports. See CNMV Application Appendix B, Category: Reports and 
Notifications at 59-62.
---------------------------------------------------------------------------

     Notification--Exchange Act rule 18a-8 requires 
notification to the Commission when certain financial or operational 
problems occur.\142\
---------------------------------------------------------------------------

    \142\ 17 CFR 240.18a-8. The CNMV Application discusses Spanish 
and EU requirements that address firms' obligations to make certain 
notifications. See CNMV Application Appendix B category 2 at 62-65.
---------------------------------------------------------------------------

     Daily Trading Records--Exchange Act section 15F(g) 
requires SBS Entities to maintain daily trading records.\143\
---------------------------------------------------------------------------

    \143\ The CNMV Application discusses Spanish and EU requirements 
that address firms' record preservation obligations related to 
records that firms are required to create, as well as additional 
records such as records of communications. See CNMV Application 
Appendix B, Category: Recordkeeping and Reporting Requirements; 
Subcategory: Record Creation at 2-3.
---------------------------------------------------------------------------

    Taken as a whole, the recordkeeping, reporting, and notification 
requirements that apply to SBS Entities with a prudential regulator are 
designed to promote the prudent operation of the firm's security-based 
swap activities, assist the Commission in conducting compliance 
examinations of those activities, and alert the Commission to potential 
financial or operational problems that could impact the firm and its 
customers.

B. Commenter Views and Final Provisions

1. General Considerations
    In proposing to provide conditional substituted compliance in 
connection with this part of the CNMV Application, the Commission 
preliminarily concluded that the relevant EU and Spanish requirements, 
subject to conditions and limitations, would produce regulatory 
outcomes that are comparable to the outcomes associated with the vast 
majority of the recordkeeping, reporting, notification, and securities 
count requirements under the Exchange Act applicable to SBS Entities 
pursuant to Exchange Act rules 18a-5, 18a-6, 18a-7, 18a-8, and Exchange 
Act section 15F(g) (collectively, the recordkeeping, reporting, and 
notification requirements'').\144\ Substituted compliance for the 
recordkeeping, reporting, and notification requirements accordingly is 
conditioned on Covered Entities being subject to and complying with the 
EU and Spanish provisions that in the aggregate establish a framework 
that produces outcomes comparable to those associated with the 
analogous recordkeeping, reporting, and notification requirements under 
the Exchange Act.\145\
---------------------------------------------------------------------------

    \144\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47678-85, 47693-95.
    \145\ See paras. (e)(1)(i)(A), (e)(1)(i)(B), (e)(1)(i)(C), 
(e)(1)(i)(D), (e)(1)(i)(E), (e)(1)(i)(F)(1), (e)(1)(i)(G), 
(e)(1)(i)(H), (e)(1)(i)(I)(1), (e)(1)(i)(J)(1), (e)(1)(i)(K)(1), 
(e)(2)(i)(A), (e)(2)(i)(B), (e)(2)(i)(C), (e)(2)(i)(D), 
(e)(2)(i)(E), (e)(2)(i)(F)(1), (e)(2)(i)(G)(1), (e)(2)(i)(H), 
(e)(2)(i)(I), (e)(2)(i)(J), (e)(2)(i)(K)(1), (e)(2)(i)(L), 
(e)(2)(i)(M), (e)(3)(i), (e)(4)(i)(A), (e)(4)(i)(B)(1), and (e)(5) 
of the Order.
---------------------------------------------------------------------------

    The proposed structure of the substituted compliance determinations 
with respect to the recordkeeping, reporting, and notification 
requirements would have provided Covered Entities with greater 
flexibility to select distinct requirements within the broader rules 
for which they want to apply substituted compliance.\146\ This would 
not preclude a Covered Entity from applying substituted compliance for 
the entire rule (subject to conditions and limitations). However, it 
would permit the Covered Entity to apply substituted compliance with 
respect to certain requirements of a given rule and to comply directly 
with the remaining requirements. This more granular approach to the 
recordkeeping, reporting, and notification rules was intended to permit 
Covered Entities to leverage existing recordkeeping and reporting 
systems that are designed to comply with the broker-dealer 
recordkeeping and reporting requirements on which the recordkeeping, 
reporting, and notification requirements applicable to SBS Entities are 
based. For example, it may be more efficient for a Covered Entity to 
comply with certain Exchange Act requirements within a given 
recordkeeping, reporting, or notification rule (rather than apply 
substituted compliance) because it can utilize systems that its 
affiliated broker-dealer has implemented to comply with them. This 
proposed approach was consistent with the approach taken by the 
Commission in the French Substituted Compliance Order and UK 
Substituted Compliance Order.\147\
---------------------------------------------------------------------------

    \146\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47678-79, 47693-95.
    \147\ See French Substituted Compliance Order, 86 FR 41649; UK 
Substituted Compliance Order, 86 FR 43360.

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[[Page 59790]]

    As applied to Exchange Act rules 18a-5 and 18a-6, this approach of 
providing greater flexibility resulted in preliminary substituted 
compliance determinations with respect to the different categories of 
records these rules require SBS Entities to make, keep current, and/or 
preserve.\148\ The objective of these rules--taken as a whole--is to 
assist the Commission in monitoring and examining for compliance with 
substantive Exchange Act requirements applicable to SBS Entities (e.g., 
business conduct requirements) as well as to promote the prudent 
operation of these firms.\149\ The Commission believes the comparable 
Spanish recordkeeping rules achieve these outcomes with respect to 
compliance with substantive Spanish requirements for which preliminary 
positive substituted compliance determinations were being made in the 
proposed Order (e.g., the preliminary positive substituted compliance 
determinations with respect to the majority of the Exchange Act 
business conduct requirements). At the same time, the recordkeeping 
rules address different categories of records through distinct 
requirements within the rules. Each requirement with respect to a 
specific category of records (e.g., paragraph (b)(1) of Exchange Act 
rule 18a-5 addressing trade blotters) can be viewed in isolation as a 
distinct recordkeeping rule. Therefore, the Commission made preliminary 
substituted compliance determinations at this level of Exchange Act 
rules 18a-5 and 18a-6.\150\ The Commission did not receive comment on 
this granular approach and is adopting it as proposed.\151\
---------------------------------------------------------------------------

    \148\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47679.
    \149\ See, e.g., Exchange Act Release No. 71958 (Apr. 17, 2014), 
79 FR 25194, 25199-200 (May 2, 2014).
    \150\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47679.
    \151\ See paras. (e)(1)(i) and (e)(2)(ii) of the Order.
---------------------------------------------------------------------------

    Second, the Commission did not make a preliminary positive 
substituted compliance determination with respect to a discrete 
provision of the recordkeeping, reporting, and notification 
requirements if it was fully or partially linked to a substantive 
Exchange Act requirement for which substituted compliance was not 
available or for which a preliminary positive substituted compliance 
determination was not being made.\152\ In particular, a preliminary 
positive substituted compliance determination was not made, in full or 
in part, for recordkeeping, reporting, or notification requirements 
linked to the following Exchange Act rules for which substituted 
compliance is not available or a preliminary positive substituted 
compliance determination was not made: (1) Exchange Act rule 15Fh-4; 
(2) Exchange Act rule 15Fh-5; (3) Exchange Act rule 15Fh-6; (4) 
Exchange Act rule 18a-4; (5) Regulation SBSR; (6) Form SBSE and its 
variations; (7) Exchange Act rule 15Fh-1; and (8) Exchange Act rule 
15Fh-2. This proposed approach was consistent with the approach taken 
by the Commission in the French Substituted Compliance Order and UK 
Substituted Compliance Order.\153\ The Commission did not receive 
comment on these limitations and the Order includes them.\154\
---------------------------------------------------------------------------

    \152\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47679 (discussing this limitation).
    \153\ See French Substituted Compliance Order, 86 FR 41650; UK 
Substituted Compliance Order, 86 FR 45778.
    \154\ See para. (e) of the Order.
---------------------------------------------------------------------------

    Third, the Commission conditioned substituted compliance with 
discrete provisions of the recordkeeping, reporting, and notification 
requirements that were fully or partially linked to a substantive 
Exchange Act requirement for which substituted compliance was available 
on the Covered Entity applying substituted compliance with respect to 
the linked Exchange Act requirement.\155\ In particular, substituted 
compliance for a provision of the recordkeeping, reporting, and 
notification requirements that is linked to the following Exchange Act 
rules was conditioned on the SBS Entity applying substituted compliance 
to the linked substantive Exchange Act rule: (1) Exchange Act rule 
15Fh-3, except paragraphs (a) and (d) for which substituted compliance 
was not requested; (2) Exchange Act rule 15Fi-2; (3) Exchange Act rule 
15Fi-3; (4) Exchange Act rule 15Fi-4; (5) Exchange Act rule 15Fi-5; and 
(6) Exchange Act rule 15Fk-1. The Commission did not receive comment on 
these conditions and the Order includes them.\156\
---------------------------------------------------------------------------

    \155\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47679 (discussing this condition).
    \156\ See para. (e) of the Order.
---------------------------------------------------------------------------

    Fourth, the Commission conditioned substituted compliance with 
Exchange Act rule 18a-7 on Covered Entities filing periodic unaudited 
financial and operational information with the Commission or its 
designee in the manner and format required by Commission rule or 
order.\157\ The Commission did not receive comment on this condition 
and the Order includes it.\158\
---------------------------------------------------------------------------

    \157\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47683 (discussing this condition). See also Exchange 
Act Release No. 93335 (Oct. 14, 2021) (order specifying the manner 
and format of filing unaudited financial and operational information 
by Covered Entities relying on substituted compliance determinations 
with respect to Exchange Act rule 18a-7).
    \158\ See para. (e)(3) of the Order.
---------------------------------------------------------------------------

    Fifth, the proposed Order conditioned substituted compliance with 
Exchange Act rule 18a-8 on Covered entities simultaneously sending a 
copy of any notice required to be sent by Spanish or EU law to the 
Commission in the manner specified on the Commission's website and 
including with the transmission the contact information of an 
individual who can provide further information about the matter that is 
the subject of the notice.\159\ The Commission did not receive comment 
on these conditions and the Order includes them.\160\
---------------------------------------------------------------------------

    \159\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47683-84 (discussing this condition).
    \160\ See para. (e)(4)(ii)(A) of the Order.
---------------------------------------------------------------------------

    Sixth, the proposed Order included a condition that Covered 
Entities must promptly furnish to a representative of the Commission 
upon request an English translation of any record, report, or 
notification of the Covered Entity that is required to be made, 
preserved, filed, or subject to examination pursuant to Exchange Act 
section 15F of this Order.\161\ The Commission did not receive a 
comment on this condition and the Order includes it.\162\
---------------------------------------------------------------------------

    \161\ See Spanish Substituted Compliance Notice and Proposed 
Order, 86 FR 47685 (discussing this condition).
    \162\ See para. (e)(7) of the Order.
---------------------------------------------------------------------------

2. Citations to EU and Spanish Law
    The Commission received a comment recommending changes to the 
proposed Order to refine the scope of Spanish law provisions that would 
operate as conditions to substituted compliance.\163\ The Commission 
reviewed each of the Spanish law citations that the commenter 
recommended removing from the proposed Order for relevance to the 
comparable Exchange Act requirement while also keeping in mind that 
each EU or Spanish law citation was included in the CNMV Application 
intentionally. The Commission's conclusion and reasoning with respect 
to the commenter's recommendations are discussed in further detail 
below.
---------------------------------------------------------------------------

    \163\ See Santander Letter at 1-2.
---------------------------------------------------------------------------

    The commenter recommended removing references to SSMA articles 
276bis, 276ter, 276quater, and 276quinquies from paragraphs 
(e)(1)(i)(F)(1), and (e)(2)(i)(A), (B), and (C) of the proposed Order. 
The commenter stated that SSMA articles 276bis, 276ter, 276quater, and

[[Page 59791]]

276quinquies set out requirements regarding notifications to the CNMV 
about certain violations under Spanish law and are unrelated to the 
Commission's recordkeeping requirements addressed by paragraphs 
(e)(1)(i)(F)(1), and (e)(2)(i)(A), (B), and (C). Instead, the commenter 
states, SSMA articles 276bis, 276ter, 276quater, and 276quinquies 
should be, and are, included in paragraph (e)(4)(i), which addresses 
the Commission's notification requirements. The Commission agrees with 
the commenter's reasoning and is therefore removing references to SSMA 
articles 276bis, 276ter, 276quater, and 276quinquies from paragraphs 
(e)(1)(i)(F)(1), and (e)(2)(i)(A), (B), and (C) of the Order.\164\
---------------------------------------------------------------------------

    \164\ Compare paras. (e)(1)(i)(F)(1), and (e)(2)(i)(A), (B), and 
(C) of the proposed Order, with paras. (e)(1)(i)(F)(1), and 
(e)(2)(i)(A), (B), and (C) of the Order.
---------------------------------------------------------------------------

    In addition, as discussed in Part VI.B. above, MLD and SMLA are 
supervised by SEPBLAC and COPBLAC which are not signatories to the 
supervisory and enforcement memorandum of understanding with the 
Commission. Accordingly, paragraphs (e)(1)(i)(G), (e)(1)(i)(I), and 
(e)(2)(i)(F) of the Order no longer require a Covered Entity to be 
subject to and comply with MLD articles 11 and 13 and SMLA articles 3-7 
and instead require the Covered Entity to be subject to and comply with 
comparable MiFID-based requirements.\165\
---------------------------------------------------------------------------

    \165\ Compare paras. (e)(1)(i)(G), (e)(1)(i)(I), and 
(e)(2)(i)(F) of the proposed Order, with paras. (e)(1)(i)(G), 
(e)(1)(i)(I), and (e)(2)(i)(F) of the Order.
---------------------------------------------------------------------------

    No other comments were received regarding any other Spanish law 
provisions that would operate as conditions to substituted compliance. 
Accordingly, the Commission is issuing these remaining conditions as 
proposed.

VIII. Supervisory and Enforcement Considerations

A. Proposed Approach

    Exchange Act rule 3a71-6(a)(2)(i) provides that the Commission's 
assessments regarding the comparability of foreign requirements in part 
should take into account ``the effectiveness of the supervisory program 
administered, and the enforcement authority exercised'' by the foreign 
financial regulatory authority. This provision is intended to help 
ensure that substituted compliance is not predicated on rules that 
appear high-quality on paper if market participants in practice are 
allowed to fall short of their obligations, while also recognizing that 
differences among supervisory and enforcement regimes should not be 
assumed to reflect flaws in one regime or another.\166\ The CNMV 
Application accordingly included information regarding the supervisory 
and enforcement framework applicable to derivatives markets and market 
participants in Spain.
---------------------------------------------------------------------------

    \166\ See French Substituted Compliance Notice and Proposed 
Order, 85 FR 85734.
---------------------------------------------------------------------------

    In proposing to grant substituted compliance in connection with the 
CNMV Application, the Commission preliminarily concluded that the 
relevant supervisory and enforcement considerations were consistent 
with substituted compliance. That preliminary conclusion took into 
account information regarding the CNMV and the Bank of Spain (together, 
the ``Spanish Authorities'') and the ECB's roles and practices in 
supervising investment firms and credit institutions located in Spain, 
as well as their enforcement-related authority and practices.\167\
---------------------------------------------------------------------------

    \167\ Id. at 85734-36.
---------------------------------------------------------------------------

B. Commenter Views and Final Provisions

    Commenters did not address the Commission's preliminary conclusions 
regarding supervisory and enforcement considerations, and the 
Commission continues to conclude that the relevant supervisory and 
enforcement considerations in Spain are consistent with substituted 
compliance. In particular, based on the available information regarding 
the Spanish Authorities' and the ECB's authority and practices to 
oversee market participants' compliance with applicable requirements 
and to take action in the event of violations, the Commission remains 
of the view that, consistent with rule 3a71-6, comparability 
determinations reflect Spain and EU requirements as they apply in 
practice.
    To be clear, the supervisory and enforcement considerations 
addressed by rule 3a71-6 do not mandate that the Commission make 
judgments regarding the comparative merits of U.S. and foreign 
supervisory and enforcement frameworks, or to require specific findings 
regarding the supervisory and enforcement effectiveness of a foreign 
regime. The rule 3a71-6 considerations regarding supervisory and 
enforcement effectiveness instead address whether comparability 
analyses related to substituted compliance reflect requirements that 
market participants must follow, and for which market participants are 
subject to enforcement consequences in the event of violations. Those 
considerations are satisfied here.

IX. Conclusion

    It is hereby determined and ordered, pursuant to rule 3a71-6 under 
the Exchange Act, that a Covered Entity (as defined in paragraph (f)(1) 
of this Order) may satisfy the requirements under the Exchange Act that 
are addressed in paragraphs (b) through (e) of this Order so long as 
the Covered Entity is subject to and complies with relevant 
requirements of the Kingdom of Spain and the European Union and with 
the conditions of this Order, as amended or superseded from time to 
time.
    (a) General conditions.
    This Order is subject to the following general conditions, in 
addition to the conditions specified in paragraphs (b) through (e):
    (1) Activities as MiFID ``investment services or activities.'' For 
each condition in paragraphs (b) through (e) of this Order that 
requires the application of, and the Covered Entity's compliance with, 
provisions of MiFID; provisions of SSMA and/or RD 217/2008 that 
implement MiFID; and/or other EU and Spanish requirements adopted 
pursuant to those provisions, the Covered Entity's relevant security-
based swap activities constitute ``investment services'' or 
``investment activities,'' as defined in MiFID article 4(1)(2) and in 
SSMA article 140, and fall within the scope of the Covered Entity's 
authorization from the CNMV and the ECB to provide investment services 
and/or perform investment activities in the Kingdom of Spain.
    (2) Counterparties as MiFID ``clients.'' For each condition in 
paragraphs (b) through (e) of this Order that requires the application 
of, and the Covered Entity's compliance with, provisions of MiFID; 
provisions of SSMA and/or RD 217/2008 that implement MiFID; and/or 
other EU and Spanish requirements adopted pursuant to those provisions, 
the relevant counterparty (or potential counterparty) to the Covered 
Entity is a ``client'' (or potential ``client''), as defined in MiFID 
article 4(1)(9) and in the First Additional Provision of Royal Decree 
Law 14/2018, of 28 September.
    (3) Security-based swaps as MiFID ``financial instruments.'' For 
each condition in paragraphs (b) through (e) of this Order that 
requires the application of, and the Covered Entity's compliance with, 
provisions of MiFID; provisions of SSMA and/or RD 217/2008 that 
implement MiFID; and/or other EU and Spanish requirements adopted 
pursuant to those provisions, the relevant security-based swap is a 
``financial instrument,'' as defined in MiFID article 4(1)(15) and in 
the Annex to SSMA.

[[Page 59792]]

    (4) Covered Entity as CRD/CRR ``institution.'' For each condition 
in paragraph (b) through (e) of this Order that requires the 
application of, and the Covered Entity's compliance with, the 
provisions of CRD; provisions of LOSSEC, RD 84/2015, BoS Circular 2/
2016, SSMA, and/or RD 217/2008 that implement CRD; CRR; and/or other EU 
and Spanish requirements adopted pursuant to those provisions, the 
Covered Entity is an ``institution,'' as defined in CRD article 3(1)(3) 
and CRR article 4(1)(3), and either a credit institution, as defined in 
LOSSEC article 1 (in the case of a provision of LOSSEC, RD 84/2015, 
and/or BoS Circular 2/2016), or an investment firm, as defined in SSMA 
article 138 (in the case of a provision of SSMA and/or RD 217/2008 that 
implements CRD).
    (5) Counterparties as EMIR ``counterparties.'' For each condition 
in paragraphs (b) through (e) of this Order that requires the 
application of, and the Covered Entity's compliance with, provisions of 
EMIR, EMIR RTS, EMIR Margin RTS, and/or other EU requirements adopted 
pursuant to those provisions, if the relevant provision applies only to 
the Covered Entity's activities with specified types of counterparties, 
and if the counterparty to the Covered Entity is not any of the 
specified types of counterparty, the Covered Entity complies with the 
applicable condition of this Order:
    (i) As if the counterparty were the specified type of counterparty; 
in this regard, if the Covered Entity reasonably determines that the 
counterparty would be a financial counterparty if it were established 
in the EU and authorized by an appropriate EU authority, it must treat 
the counterparty as if the counterparty were a financial counterparty;
    (ii) Without regard to the application of EMIR article 13; and
    (iii) Only to the extent that an Exchange Act section or rule cited 
in paragraphs (b) through (e) of this Order applies to the security-
based swap activities with that counterparty.
    (6) Security-based swap status under EMIR. For each condition in 
paragraphs (b) through (e) of this Order that requires the application 
of, and the Covered Entity's compliance with, provisions of EMIR, EMIR 
RTS, EMIR Margin RTS, and/or other EU requirements adopted pursuant to 
those provisions, if the relevant provision applies to the Covered 
Entity's OTC derivatives or OTC derivative contracts that have not been 
cleared by a central counterparty, then either:
    (i) The relevant security-based swap is an ``OTC derivative'' or 
``OTC derivative contract,'' as defined in EMIR article 2(7), that has 
not been cleared by a central counterparty and otherwise is subject to 
the provisions of EMIR article 11, EMIR RTS articles 11 through 15, and 
EMIR Margin RTS article 2; or
    (ii) The relevant security-based swap has been cleared by a central 
counterparty that is authorized or recognized to clear derivatives 
contracts by a relevant authority in the EU.
    (7) Memorandum of Understanding with the Spanish Authorities. The 
Commission and the CNMV and the Bank of Spain have a supervisory and 
enforcement memorandum of understanding and/or other arrangement 
addressing cooperation with respect to this Order at the time the 
Covered Entity complies with the relevant requirements under the 
Exchange Act via compliance with one or more provisions of this Order.
    (8) Memorandum of Understanding Regarding ECB-Owned Information. 
The Commission and the ECB have a supervisory and enforcement 
memorandum of understanding and/or other arrangement addressing 
cooperation with respect to this Order as it pertains to information 
owned by the ECB at the time the Covered Entity complies with the 
relevant requirements under the Exchange Act via compliance with one or 
more provisions of this Order.
    (9) Notice to Commission. A Covered Entity relying on this Order 
must provide notice of its intent to rely on this Order by notifying 
the Commission in writing. Such notice must be sent to the Commission 
in the manner specified on the Commission's website. The notice must 
include the contact information of an individual who can provide 
further information about the matter that is the subject of the notice. 
The notice must also identify each specific substituted compliance 
determination within paragraphs (b) through (e) of this Order for which 
the Covered Entity intends to apply substituted compliance. A Covered 
Entity must promptly provide an amended notice if it modifies its 
reliance on the substituted compliance determinations in this Order.
    (10) European Union Cross-Border Matters.
    (i) If, in relation to a particular service provided by a Covered 
Entity, responsibility for ensuring compliance with any provision of 
MiFID or MiFIR or any other EU or Spanish requirement adopted pursuant 
to MiFID or MiFIR listed in paragraphs (b) through (e) of this Order is 
allocated to an authority of the Member State of the European Union in 
whose territory a Covered Entity provides the service, the CNMV must be 
the authority responsible for supervision and enforcement of that 
provision or requirement in relation to the particular service.
    (ii) If responsibility for ensuring compliance with any provision 
of MAR or any other EU requirement adopted pursuant to MAR listed in 
paragraphs (b) through (e) of this Order is allocated to one or more 
authorities of a Member State of the European Union, one of such 
authorities must be the CNMV.
    (11) Notification Requirements Related to Changes in Capital. A 
Covered Entity that is prudentially regulated relying on this Order 
must apply substituted compliance with respect to the requirements of 
Exchange Act rule 18a-8(c) and the requirements of Exchange Act rule 
18a-8(h) as applied to Exchange Act rule 18a-8(c).
    (b) Substituted compliance in connection with risk control 
requirements.
    This Order extends to the following provisions related to risk 
control:
    (1) Internal risk management. The requirements of Exchange Act 
section 15F(j)(2) and related aspects of Exchange Act rule 15Fh-
3(h)(2)(iii)(I), provided that
    (i) The Covered Entity is subject to and complies with the 
requirements of:
    (A) MiFID articles 16 and 23; SSMA articles 193, 194, 208bis, 
220bis, 221, 222, 223, and 224; and RD 217/2008 articles 30, 30bis, 
30ter, 30qu[aacute]ter, 30quinqies, 30sexies, 32, 41, 42, 43, 44, 45, 
46, 47, 48, 61, 66, 67, 68, 69, 70, 71, 72, 72bis, 72ter, 73, 74, 
74bis, 74ter, 75, 75bis, 76, 76bis, and 79; and, if the Covered Entity 
is a credit institution, also BoS Circular 2/2016 article 43 and RD 84/
2015 article 22;
    (B) MiFID Org Reg articles 21 through 37, 72 through 76 and Annex 
IV;
    (C) CRD articles 74, 76, 79 through 87, 88(1), 91(1) and (2), 91(7) 
through (9), 92, 94, and 95; SSMA articles 182(1) and (2) and 183(1) 
and (2); and RD 217/2008 article 35; and, if the Covered Entity is a 
credit institution, also LOSSEC articles 24, 25, 26, 27, 28, 29, 32, 
33, 34, 36, 37, and 38; RD 84/2015 articles 29, 30, 31, 32, 33, 34, 35, 
36, 37, 39, 41, 42, 43, 44, 46, 47, 48, 49, 50, 51, 52, 53, and 54; and 
BoS Circular 2/2016 articles 26, 27, 28, 29, 30, 31, 32, 33(4), 34, 35, 
36, 37, 38, 39, 40, 41, 46, 47, 48, 49, 50, 51, 52, and 60; and, if the 
Covered Entity is an investment firm, also SSMA articles 183(3), 184, 
184bis, 185, 185bis, 186, 188, 189(1) through (3) and (5), 189bis, 
189ter, and 192bis; and RD 217/2008 articles 14(1)(f), 20, 20bis, 21, 
22, 24, 31, 31bis, 36, 38, 39(1) and (2), 40, 88, 90, 91, 92, 93, 94, 
95, 96, 97(1) through (3), and 98;

[[Page 59793]]

    (D) CRR articles 286 through 288 and 293; and
    (E) EMIR Margin RTS article 2;
    (ii) If the Covered Entity is an investment firm, the Covered 
Entity is not exempt from certain provisions of RD 217/2008 pursuant to 
RD 217/2008 article 87(2) and/or (3) and/or exempt from SSMA article 
189 pursuant to SSMA article 189(6) and/or (7); and
    (iii) If the Covered Entity is an investment firm, the Covered 
Entity establishes, maintains, and implements policies and procedures 
for management of residual risk associated with the use of recognized 
credit risk mitigation techniques described in RD 217/2008 article 
103(1)(c).
    (2) Trade acknowledgement and verification. The requirements of 
Exchange Act rule 15Fi-2, provided that the Covered Entity is subject 
to and complies with the requirements of EMIR article 11(1)(a) and EMIR 
RTS article 12.
    (3) Portfolio reconciliation and dispute reporting. The 
requirements of Exchange Act rule 15Fi-3, provided that:
    (i) The Covered Entity is subject to and complies with the 
requirements of EMIR article 11(1)(b) and EMIR RTS articles 13 and 15; 
and
    (ii) The Covered Entity provides the Commission with reports 
regarding disputes between counterparties on the same basis as it 
provides those reports to competent authorities pursuant to EMIR RTS 
article 15(2).
    (4) Portfolio compression. The requirements of Exchange Act rule 
15Fi-4, provided that the Covered Entity is subject to and complies 
with the requirements of EMIR RTS article 14.
    (5) Trading relationship documentation. The requirements of 
Exchange Act rule 15Fi-5, other than paragraph (b)(5) to that rule when 
the counterparty is a U.S. person, provided that the Covered Entity is 
subject to and complies with the requirements of EMIR article 11(1)(a), 
EMIR RTS article 12, and EMIR Margin RTS article 2.
    (c) Substituted compliance in connection with internal supervision 
and compliance requirements and certain Exchange Act section 15F(j) 
requirements.
    This Order extends to the following provisions related to internal 
supervision and compliance and Exchange Act section 15F(j) 
requirements:
    (1) Internal supervision. The requirements of Exchange Act rule 
15Fh-3(h) and Exchange Act sections 15F(j)(4)(A) and (j)(5), provided 
that:
    (i) The Covered Entity is subject to and complies with the 
requirements identified in paragraph (c)(3) of this Order and complies 
with the other conditions in that paragraph;
    (ii) The Covered Entity complies with paragraph (c)(4) of this 
Order; and
    (iii) This paragraph (c) does not extend to the requirements of 
paragraph (h)(2)(iii)(I) to rule 15Fh-3 to the extent those 
requirements pertain to compliance with Exchange Act sections 
15F(j)(2), (j)(3), (j)(4)(B) and (j)(6), or to the general and 
supporting provisions of paragraph (h) to rule 15Fh-3 in connection 
with those Exchange Act sections.
    (2) Chief compliance officers. The requirements of Exchange Act 
section 15F(k) and Exchange Act rule 15Fk-1, provided that:
    (i) The Covered Entity is subject to and complies with the 
requirements identified in paragraph (c)(3) of this Order and complies 
with the other conditions in that paragraph;
    (ii) All reports required pursuant to MiFID Org Reg article 
22(2)(c) must also:
    (A) Be provided to the Commission at least annually, and in the 
English language;
    (B) Include a certification signed by the chief compliance officer 
or senior officer (as defined in Exchange Act rule 15Fk-1(e)(2)) of the 
Covered Entity that, to the best of the certifier's knowledge and 
reasonable belief and under penalty of law, the report is accurate and 
complete in all material respects;
    (C) Address the Covered Entity's compliance with:
    (i) Applicable requirements under the Exchange Act; and
    (ii) The other applicable conditions of this Order in connection 
with requirements for which the Covered Entity is relying on this 
Order;
    (D) Be provided to the Commission no later than 15 days following 
the earlier of:
    (i) The submission of the report to the Covered Entity's management 
body; or
    (ii) The time the report is required to be submitted to the 
management body; and
    (E) Together cover the entire period that the Covered Entity's 
annual compliance report referenced in Exchange Act section 15F(k)(3) 
and Exchange Act rule 15Fk-1(c) would be required to cover.
    (3) Applicable supervisory and compliance requirements. (i) 
Paragraphs (c)(1) and (c)(2) are conditioned on the Covered Entity 
being subject to and complying with the following requirements:
    (A) MiFID articles 16 and 23; SSMA articles 193, 194, 208bis, 
220bis, 221, 222, 223, and 224; and RD 217/2008 articles 30, 30bis, 
30ter, 30qu[aacute]ter, 30quinqies, 30sexies, 32, 41, 42, 43, 44, 45, 
46, 47, 48, 61, 66, 67, 68, 69, 70, 71, 72, 72bis, 72ter, 73, 74, 
74bis, 74ter, 75, 75bis, 76, 76bis, and 79; and, if the Covered Entity 
is a credit institution, also BoS Circular 2/2016 article 43 and RD 84/
2015 article 22;
    (B) MiFID Org Reg articles 21 through 37, 72 through 76 and Annex 
IV;
    (C) CRD articles 74, 76, 79 through 87, 88(1), 91(1) and (2), 91(7) 
through (9), 92, 94, and 95; SSMA articles 182(1) and (2) and 183(1) 
and (2); and RD 217/2008 article 35; and, if the Covered Entity is a 
credit institution, also LOSSEC articles 24, 25, 26, 27, 28, 29, 32, 
33, 34, 36, 37, and 38; RD 84/2015 articles 29, 30, 31, 32, 33, 34, 35, 
36, 37, 39, 41, 42, 43, 44, 46, 47, 48, 49, 50, 51, 52, 53, and 54; and 
BoS Circular 2/2016 articles 26, 27, 28, 29, 30, 31, 32, 33(4), 34, 35, 
36, 37, 38, 39, 40, 41, 46, 47, 48, 49, 50, 51, 52, and 60; and, if the 
Covered Entity is an investment firm, also SSMA articles 183(3), 184, 
184bis, 185, 185bis, 186, 188, 189(1) through (3) and (5), 189bis, 
189ter, and 192bis; and RD 217/2008 articles 14(1)(f), 20, 20bis, 21, 
22, 24, 30, 31, 31bis, 36, 38, 39(1) and (2), 40, 88, 90, 91, 92, 93, 
94, 95, 96, 97(1) through (3), and 98;
    (D) CRR articles 286 through 288 and 293; and
    (E) EMIR Margin RTS article 2.
    (ii) Paragraphs (c)(1) and (c)(2) also are conditioned on the 
Covered Entity's compliance with the following conditions:
    (A) If the Covered Entity is an investment firm, the Covered Entity 
is not exempt from certain provisions of RD 217/2008 pursuant to RD 
217/2008 article 87(2) and/or (3) and/or exempt from SSMA article 189 
pursuant to SSMA article 189(6) and/or (7); and
    (B) If the Covered Entity is an investment firm, the Covered Entity 
establishes, maintains, and implements policies and procedures for 
management of residual risk associated with the use of recognized 
credit risk mitigation techniques described in RD 217/2008 article 
103(1)(c).
    (4) Additional condition to paragraph (c)(1). Paragraph (c)(1) 
further is conditioned on the requirement that the Covered Entity 
complies with the provisions specified in paragraph (c)(3) as if those 
provisions also require compliance with:
    (i) Applicable requirements under the Exchange Act; and
    (ii) The other applicable conditions of this Order in connection 
with requirements for which the Covered Entity is relying on this 
Order.

[[Page 59794]]

    (d) Substituted compliance in connection with counterparty 
protection requirements.
    This Order extends to the following provisions related to 
counterparty protection:
    (1) Disclosure of information regarding material risks and 
characteristics. The requirements of Exchange Act rule 15Fh-3(b) 
relating to disclosure of material risks and characteristics of one or 
more security-based swaps subject thereto, provided that the Covered 
Entity, in relation to that security-based swap, is subject to and 
complies with the requirements of MiFID article 24(4); SSMA articles 
209(1) and (3) and 210(1); RD 217/2008 articles 65 and 77(1); and MiFID 
Org Reg articles 48-50.
    (2) Disclosure of information regarding material incentives or 
conflicts of interest. The requirements of Exchange Act rule 15Fh-3(b) 
relating to disclosure of material incentives or conflicts of interest 
that a Covered Entity may have in connection with one or more security-
based swaps subject thereto, provided that the Covered Entity, in 
relation to that security-based swap, is subject to and complies with 
the requirements of either:
    (i) MiFID article 23(2) and (3); RD 217/2008 article 61(2) and (3); 
and MiFID Org Reg articles 33-35;
    (ii) MiFID article 24(9); MiFID Delegated Directive article 11(5); 
and SSMA articles 220ter, 220qu[aacute]ter, and 220quinquies; RD 217/
2008 articles 62, 63, and 64; or
    (iii) MAR article 20(1) and MAR Investment Recommendations 
Regulation articles 5 and 6.
    (3) ``Know your counterparty.'' The requirements of Exchange Act 
rule 15Fh-3(e), as applied to one or more security-based swap 
counterparties subject thereto, provided that the Covered Entity, in 
relation to the relevant security-based swap counterparty, is subject 
to and complies with the requirements of MiFID article 16(2) and (6); 
SSMA articles 193(2)(a) and 194(1); RD 217/2008 articles 30 and 32(1) 
and (10); MiFID Org Reg articles 21, 22, 25, 26, 72, 74, 75 and 
applicable parts of Annexes I and IV; CRD articles 74(1) and 85(1); 
SSMA articles 182(1) and 193(3)(b); and RD 217/2008 article 35 and, if 
the Covered Entity is a credit institution, also LOSSEC article 29(1); 
RD 84/2015 articles 43 and 52(1); BoS Circular 2/2016 article 28; and, 
if the Covered Entity is an investment firm, also SSMA article 189bis 
and RD 217/2008 article 96(1).
    (4) Suitability. The requirements of Exchange Act rule 15Fh-3(f), 
as applied to one or more recommendations of a security-based swap or 
trading strategy involving a security-based swap subject thereto, 
provided that:
    (i) The Covered Entity, in relation to the relevant recommendation, 
is subject to and complies with the requirements of MiFID articles 
24(2) and (3) and 25(1) and (2); SSMA articles 208ter(1) and (2), 
209(2), 212, 213, and 220sexies; RD 217/2008 articles 66, 71, 72, 
72bis, 72ter, 73, 74, 74bis, 74ter, 75, 75bis, 76bis, and 80; CNMV 
Technical Guide 4/2017; and MiFID Org Reg articles 21(1)(b) and (d), 
54, and 55; and
    (ii) The counterparty to which the Covered Entity makes the 
recommendation is a ``professional client'' mentioned in MiFID Annex II 
section I and in SSMA article 205 and RD 217/2008 article 58 and is not 
a ``special entity'' as defined in Exchange Act section 15F(h)(2)(C) 
and Exchange Act rule 15Fh-2(d).
    (5) Fair and balanced communications. The requirements of Exchange 
Act rule 15Fh-3(g), as applied to one or more communications subject 
thereto, provided that the Covered Entity, in relation to the relevant 
communication, is subject to and complies with the requirements of:
    (i) Either MiFID articles 24(1) and (3) and SSMA articles 208 and 
209(2) or MiFID article 30(1) and SSMA article 207(4); and
    (ii) MiFID articles 24(4) and (5); SSMA articles 209(1) and (3) and 
210(1); RD 217/2008 article 77; MiFID Org Reg articles 46-48; MAR 
articles 12(1)(c), 15 and 20(1); and MAR Investment Recommendations 
Regulation articles 3 and 4.
    (6) Daily mark disclosure. The requirements of Exchange Act rule 
15Fh-3(c), as applied to one or more security-based swaps subject 
thereto, provided that the Covered Entity is required to reconcile, and 
does reconcile, the portfolio containing the relevant security-based 
swap on each business day pursuant to EMIR articles 11(1)(b) and 11(2) 
and EMIR RTS article 13.
    (e) Substituted compliance in connection with recordkeeping, 
reporting, and notification requirements.
    This Order extends to the following provisions that apply to a 
Covered Entity related to recordkeeping, reporting, and notification:
    (1)(i) Make and keep current certain records. The requirements of 
the following provisions of Exchange Act rule 18a-5, provided that the 
Covered Entity complies with the relevant conditions in this paragraph 
(e)(1)(i) and with the applicable conditions in paragraph (e)(1)(ii):
    (A) The requirements of Exchange Act rule 18a-5(b)(1), provided 
that the Covered Entity is subject to and complies with the 
requirements of MiFID Org Reg articles 74, 75, and Annex IV; MiFIR 
article 25(1);
    (B) The requirements of Exchange Act rule 18a-5(b)(2), provided 
that the Covered Entity is subject to and complies with the 
requirements of MiFID Delegated Directive article 2; MiFID Org Reg 
articles 72, 74 and 75; EMIR article 39(4); RD 217/2008 article 41;
    (C) The requirements of Exchange Act rule 18a-5(b)(3), provided 
that the Covered Entity is subject to and complies with the 
requirements of CRR article 103; MiFID articles 16(6), 25(5), and 
25(6); MiFID Org Reg articles 59, 74, 75 and Annex IV; MiFIR article 
25(1); EMIR articles 9(2) and 11(1)(a); SSMA articles 194(1), 218, and 
211; and RD 217/2008 articles 3, 32(1), and 82;
    (D) The requirements of Exchange Act rule 18a-5(b)(4), provided 
that the Covered Entity is subject to and complies with the 
requirements of MiFID Org Reg article 59; EMIR articles 9(2) and 
11(1)(a); MiFID articles 16(6), 25(5), and 25(6); SSMA articles 194(1), 
218, and 211; and RD 217/2008 articles 3, 32(1), and 82;
    (E) The requirements of Exchange Act rule 18a-5(b)(5), provided 
that the Covered Entity is subject to and complies with the 
requirements of MiFID Org Reg articles 74, 75, and Annex IV; and MiFIR 
article 25(1);
    (F) The requirements of Exchange Act rules 18a-5(b)(6) and (b)(11), 
provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of CRR articles 103, 105(3), and 105(10); CRD article 73; 
MiFID articles 16(6), 25(5), 25(6); MiFID Delegated Directive article 
2; MiFID Org Reg articles 59, 74, 75, and Annex IV; MiFIR article 
25(1); EMIR articles 9(2), 11(1)(a), and 39(4); SSMA articles 194(1), 
218, 211; and RD 217/2008 articles 3, 32(1), 41, and 82; and
    (2) The Covered Entity applies substituted compliance for the 
requirements of Exchange Act rule 15Fi-2 pursuant to this Order;
    (G) The requirements of Exchange Act rule 18a-5(b)(7), provided 
that the Covered Entity is subject to and complies with the 
requirements of MiFIR article 25(1); MiFID article 25(2); MiFID Org Reg 
article 74 and section 1 of Annex 4; and SSMA article 213; (H) The 
requirements of Exchange Act rule 18a-5(b)(8), provided that the 
Covered Entity is subject to and complies with the requirements of 
MiFID Org Reg articles 21(1)(d), 35; CRD articles 88,

[[Page 59795]]

91(1), 91(8); MiFID articles 9(1) and 16(3); SSMA articles 193(2)(b) 
and 208bis; LOSSEC articles 24(1) and 29(2); and BoS Circular 2/2016 
Rule 32(1);
    (I) The requirements of Exchange Act rule 18a-5(b)(13), regarding 
one or more provisions of Exchange Act rules 15Fh-3 or 15Fk-1 for which 
substituted compliance is available under this Order, provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of MiFID Org Reg articles 72, 73, 74, 75, and Annexes I 
and IV; MiFID articles 16(6) and 25(2); EMIR article 39(5); SSMA 
articles 194(1) and 213; and RD 217/2008 article 32(1) and (10), in 
each case with respect to the relevant security-based swap or activity;
    (2) With respect to the portion of Exchange Act rule 18a-5(b)(13) 
that relates to one or more provisions of Exchange Act rule 15Fh-3 for 
which substituted compliance is available under this Order, the Covered 
Entity applies substituted compliance for such business conduct 
standard(s) of Exchange Act rule 15Fh-3 pursuant to this Order, as 
applicable, with respect to the relevant security-based swap or 
activity; and
    (3) With respect to the portion of Exchange Act rule 18a-5(b)(13) 
that relates to Exchange Act rule 15Fk-1, the Covered Entity applies 
substituted compliance for Exchange Act section 15F(k) and Exchange Act 
rule 15Fk-1 pursuant to this Order;
    (J) The requirements of Exchange Act rule 18a-5(b)(14)(i) and (ii), 
provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of EMIR article 11(1)(b) and EMIR RTS article 15(1)(a); 
and
    (2) The Covered Entity applies substituted compliance for Exchange 
Act rule 15Fi-3 pursuant to this Order; and
    (K) The requirements of Exchange Act rule 18a-5(b)(14)(iii), 
provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of EMIR article 11(1)(b) and EMIR RTS article 15(1)(a), in 
each case with respect to such security-based swap portfolio(s); and
    (2) The Covered Entity applies substituted compliance for Exchange 
Act rule 15Fi-4 pursuant to this Order.
    (ii) Paragraph (e)(1)(i) is subject to the following further 
conditions:
    (A) Paragraphs (e)(1)(i)(A) through (C) and (G) are subject to the 
condition that the Covered Entity preserves all of the data elements 
necessary to create the records required by the applicable Exchange Act 
rules cited in such paragraphs and upon request furnishes promptly to 
representatives of the Commission the records required by those rules;
    (B) A Covered Entity may apply the substituted compliance 
determination in paragraph (e)(1)(i)(I) to records of compliance with 
Exchange Act rule 15Fh-3(b), (c), (e), (f) and (g) in respect of one or 
more security-based swaps or activities related to security-based 
swaps; and
    (C) This Order does not extend to the requirements of Exchange Act 
rule 18a-5(b)(9), (b)(10) or (b)(12).
    (2)(i) Preserve certain records. The requirements of the following 
provisions of Exchange Act rule 18a-6, provided that the Covered Entity 
complies with the relevant conditions in this paragraph (e)(2)(i) and 
with the applicable conditions in paragraph (e)(2)(ii):
    (A) The requirements of Exchange Act rule 18a-6(a)(2), provided 
that the Covered Entity is subject to and complies with the 
requirements of MiFID Org Reg articles 72, 74, 75, and Annex IV; CRR 
article 103; MiFIR article 25(1); EMIR article 9(2); MiFID articles 
16(6) and 69(2); CRD article 73; MiFID Delegated Directive article 2; 
SSMA articles 194(1), 234; and RD 217/2008 articles 32(1) and 41;
    (B) The requirements of Exchange Act rule 18a-6(b)(2)(i), provided 
that the Covered Entity is subject to and complies with the 
requirements of MiFID Org Reg articles 72, 74, 75, and Annex IV; CRR 
article 103; MiFIR article 25(1); EMIR article 9(2); MiFID articles 
16(6) and 69(2); CRD article 73; MiFID Delegated Directive article 2; 
SSMA articles 194(1), 234; and RD 217/2008 articles 32(1) and 41;
    (C) The requirements of Exchange Act rule 18a-6(b)(2)(ii), provided 
that the Covered Entity is subject to and complies with the 
requirements of CRR article 103; MiFID Org Reg articles 72, 73, 74, 75, 
76, Annex I and Annex IV; MiFIR article 25(1); EMIR article 9(2); CRD 
article 73; MiFID articles 16(6), 16(7); MiFID Delegated Directive 
article 2; SSMA articles 194(1) through (3); and RD 217/2008 articles 
32(1) through (8) and 41;
    (D) The requirements of Exchange Act rule 18a-6(b)(2)(iii), 
provided that the Covered Entity is subject to and complies with the 
requirements of EMIR article 9(2); MiFID Org Reg articles 72(1) and 73; 
MiFID article 16(6); SSMA articles 194(1); and RD 217/2008 article 
32(1);
    (E) The requirements of Exchange Act rule 18a-6(b)(2)(iv), provided 
that the Covered Entity is subject to and complies with the 
requirements of MiFID Org Reg articles 72(1) and 73; MiFIR article 
25(1); EMIR article 9(2); MiFID article 16(6); SSMA articles 194(1); 
and RD 217/2008 article 32(1);
    (F) The requirements of Exchange Act rule 18a-6(b)(2)(vii), 
regarding one or more provisions of Exchange Act rules 15Fh-3 or 15Fk-1 
for which substituted compliance is available under this Order, 
provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of EMIR article 9(2); MiFID Org Reg articles 72, 74, and 
75 and Annexes I and IV; MiFID article 16(6); SSMA articles 194(1); and 
RD 217/2008 article 32(1) and (10), in each case with respect to the 
relevant security-based swap or activity;
    (2) With respect to the portion of Exchange Act rule 18a-
6(b)(2)(vii) that relates to one or more provisions of Exchange Act 
rule 15Fh-3 for which substituted compliance is available under this 
Order, the Covered Entity applies substituted compliance for such 
business conduct standard(s) of Exchange Act rule 15Fh-3 pursuant to 
this Order, as applicable, with respect to the relevant security-based 
swap or activity; and
    (3) With respect to the portion of Exchange Act rule 18a-
6(b)(2)(vii) that relates to Exchange Act rule 15Fk-1, the Covered 
Entity applies substituted compliance for Exchange Act section 15F(k) 
and Exchange Act rule 15Fk-1 pursuant to this Order;
    (G) The requirements of Exchange Act rule 18a-6(c), provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of MiFID Org Reg articles 21(1)(f) and 72(1); MiFID 
article 16(6); SSMA articles 194(1); and RD 217/2008 article 32(1); and
    (2) This Order does not extend to the requirements of Exchange act 
rule 18a-6(c) relating to Forms SBSE, SBSE-A, SBSE-C, SBSE-W, all 
amendments to these forms, and all other licenses or other 
documentation showing the registration of the Covered Entity with any 
securities regulatory authority or the U.S. Commodity Futures Trading 
Commission;
    (H) The requirements of Exchange Act rule 18a-6(d)(1), provided 
that the Covered Entity is subject to and complies with the 
requirements of MiFID Org Reg articles 35 and 72(1); CRD articles 88, 
91(1), 91(8); MiFID article 9(1), 16(3), 16(6); LOSSEC articles 24(1) 
and 29(1) and (2); SSMA articles 193(2)(b), 194(1), and 208bis; RD 217/
2008 articles 30, 31, and 32(1); and BoS Circular 2/2016 Rule 32(1);
    (I) The requirements of Exchange Act rule 18a-6(d)(2)(ii), provided 
that the Covered Entity is subject to and

[[Page 59796]]

complies with the requirements of EMIR article 9(2); MiFID Org Reg 
articles 72(1) and 72(3); MiFID article 16(6); SSMA articles 194(1); 
and RD 217/2008 article 32(1);
    (J) The requirements of Exchange Act rule 18a-6(d)(3)(ii), provided 
that the Covered Entity is subject to and complies with the 
requirements of MiFID Org Reg articles 21(1)(f), 72, 73, and Annex I; 
MiFID article 16(6); SSMA articles 194(1); and RD 217/2008 article 
32(1);
    (K) The requirements of Exchange Act rule 18a-6(d)(4) and (d)(5), 
provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of EMIR article 9(2); MiFID Org Reg articles 24, 25(2), 
72(1) and 73; MiFID articles 16(2), 16(6), and 25(5); SSMA articles 
193(2)(a), 194(1), and 218; and RD 217/2008 articles 30(2), 32(1), and 
82; and
    (2) The Covered Entity applies substituted compliance for Exchange 
Act rules 15Fi-3, 15Fi-4, and 15Fi-5 pursuant to this Order;
    (L) The requirements of Exchange Act rule 18a-6(e), provided that 
the Covered Entity is subject to and complies with the requirements of 
MiFID Org Reg articles 21(2), 58, 72(1) and 72(3); MiFID articles 
16(5), 16(6); SSMA articles 193(3) and 194(1); and RD 217/2008 article 
32(1); and
    (M) The requirements of Exchange Act rule 18a-6(f), provided that 
the Covered Entity is subject to and complies with the requirements of 
MiFID Org Reg article 31(1); MiFID article 16(5); and SSMA article 
193(3).
    (ii) Paragraph (e)(2)(i) is subject to the following further 
conditions:
    (A) A Covered Entity may apply the substituted compliance 
determination in paragraph (e)(2)(i)(F) to records related to Exchange 
Act rule 15Fh-3(b), (c), (e), (f) and (g) in respect of one or more 
security-based swaps or activities related to security-based swaps; and
    (B) This Order does not extend to the requirements of Exchange Act 
rule 18a-6(b)(2)(v), (b)(2)(vi), or (b)(2)(viii).
    (3) File Reports. The requirements of Exchange Act rule 18a-7(a)(2) 
and the requirements of Exchange Act rule 18a-7(j) as applied to the 
requirements of Exchange Act rule 18a-7(a)(2), provided that:
    (i) The Covered Entity is subject to and complies with the 
requirements of CRR articles 99, 394, 430 and Part Six: Title II and 
Title III; CRR Reporting ITS annexes I, II, III, IV, V, VIII, IX, X, 
XI, XII and XIII, as applicable; and
    (ii) The Covered Entity files periodic unaudited financial and 
operational information with the Commission or its designee in the 
manner and format required by Commission rule or order and presents the 
financial information in the filing in accordance with generally 
accepted accounting principles that the Covered Entity uses to prepare 
general purpose publicly available or available to be issued financial 
statements in Spain.
    (4)(i) Provide Notification. The requirements of the following 
provisions of Exchange Act rule 18a-8, provided that the Covered Entity 
complies with the relevant conditions in this paragraph (e)(4)(i) and 
with the applicable conditions in paragraph (e)(4)(ii):
    (A) The requirements of Exchange Act rule 18a-8(c) and the 
requirements of Exchange Act rule 18a-8(h) as applied to the 
requirements of Exchange Act rule 18a-8(c), provided that the Covered 
Entity is subject to and complies with the requirements of LOSSEC 
articles 116, 119, 121, and 122; and SSMA articles 276bis, 276ter, 
276qu[aacute]ter, and 276quinquies;
    (B) The requirements of Exchange Act rule 18a-8(d) and the 
requirements of Exchange Act rule 18a-8(h) as applied to the 
requirements of Exchange Act rule 18a-8(d), provided that:
    (1) The Covered Entity is subject to and complies with the 
requirements of LOSSEC articles 116, 119, 121, and 122; and SSMA 
articles 276bis, 276ter, 276qu[aacute]ter, and 276quinquies; and
    (2) This Order does not extend to the requirements of Exchange Act 
rule 18a-8(d) to give notice with respect to books and records required 
by Exchange Act rule 18a-5 for which the Covered Entity does not apply 
substituted compliance pursuant to this Order;
    (ii) Paragraph (e)(4)(i) is subject to the following further 
conditions:
    (A) The Covered Entity:
    (1) Simultaneously sends a copy of any notice required to be sent 
by Spanish law cited in this paragraph of the Order to the Commission 
in the manner specified on the Commission's website; and
    (2) Includes with the transmission the contact information of an 
individual who can provide further information about the matter that is 
the subject of the notice; and
    (B) This Order does not extend to the requirements of paragraph (g) 
of rule 18a-8 or to the requirements of Exchange Act rule 18a-8(h) as 
applied to such requirements.
    (5) Daily Trading Records. The requirements of Exchange Act section 
15F(g), provided that the Covered Entity is subject to and complies 
with the requirements of SSMA Article 194(1); and RD 217/2008 Article 
32(1).
    (6) Examination and Production of Records. Notwithstanding the 
forgoing provisions of paragraph (e) of this Order, this Order does not 
extend to, and Covered Entities remain subject to, the requirement of 
Exchange Act section 15F(f) to keep books and records open to 
inspection by any representative of the Commission and the requirement 
of Exchange Act rule 18a-6(g) to furnish promptly to a representative 
of the Commission legible, true, complete, and current copies of those 
records of the Covered Entity that are required to be preserved under 
Exchange Act rule 18a-6, or any other records of the Covered Entity 
that are subject to examination or required to be made or maintained 
pursuant to Exchange Act section 15F that are requested by a 
representative of the Commission.
    (7) English Translations. Notwithstanding the forgoing provisions 
of paragraph (e) of this Order, to the extent documents are not 
prepared in the English language, Covered Entities must promptly 
furnish to a representative of the Commission upon request an English 
translation of any record, report, or notification of the Covered 
Entity that is required to be made, preserved, filed, or subject to 
examination pursuant to Exchange Act section 15F of this Order.
    (f) Definitions.
    (1) ``Covered Entity'' means an entity that:
    (i) Is a security-based swap dealer or major security-based swap 
participant registered with the Commission;
    (ii) Is not a ``U.S. person,'' as that term is defined in rule 
3a71-3(a)(4) under the Exchange Act; and
    (iii) Is an investment firm or a credit institution authorized by 
the CNMV and the ECB to provide investment services and/or perform 
investment activities in the Kingdom of Spain; and
    (iv) Is a significant institution supervised by the CNMV and the 
ECB (with the participation of the BoS).
    (2) ``MiFID'' means the ``Markets in Financial Instruments 
Directive,'' Directive 2014/65/EU, as amended from time to time.
    (3) ``MiFID Org Reg'' means Commission Delegated Regulation (EU) 
2017/565, as amended from time to time.
    (4) ``MiFID Delegated Directive'' means Commission Delegated 
Directive (EU) 2017/593, as amended from time to time.
    (5) ``MiFIR'' means Regulation (EU) 600/2014, as amended from time 
to time.
    (6) ``EMIR'' means the ``European Market Infrastructure 
Regulation,''

[[Page 59797]]

Regulation (EU) 648/2012, as amended from time to time.
    (7) ``EMIR RTS'' means Commission Delegated Regulation (EU) 149/
2013, as amended from time to time.
    (8) ``EMIR Margin RTS'' means Commission Delegated Regulation (EU) 
2016/2251, as amended from time to time.
    (9) ``CRD'' means Directive 2013/36/EU, as amended from time to 
time.
    (10) ``CRR'' means Regulation (EU) 575/2013, as amended from time 
to time.
    (11) ``CRR Reporting ITS'' means Commission Implementing Regulation 
(EU) 680/2014, as amended from time to time.
    (12) ``MAR'' means the ``Market Abuse Regulation,'' Regulation (EU) 
596/2014, as amended from time to time.
    (13) ``MAR Investment Recommendations Regulation'' means Commission 
Delegated Regulation (EU) 2016/958, as amended from time to time.
    (14) ``CNMV'' means the Spanish Comisi[oacute]n Nacional del 
Mercado de Valores.
    (15) ``BoS'' means the Spanish Banco de Espa[ntilde]a.
    (16) ``ECB'' means the European Central Bank.
    (17) ``Accounting Directive'' means Directive 2013/34/EU of the 
European Parliament and of the Council of 26 June 2013, as amended from 
time to time.
    (18) ``BRRD'' means Bank Recovery and Resolution Directive 2014/59/
EU of the European Parliament and of the Council of 15 May 2014, as 
amended from time to time.
    (19) ``SSMA'' means the Spanish Securities Market Act, Royal 
Legislative Decree 4/2015, of October 23, as amended from time to time.
    (20) ``RD 217/2008'' means Royal Decree 217/2008, of February 15, 
as amended from time to time.
    (21) ``LOSSEC'' means the Act on Regulation, Supervision, and 
Solvency of Credit Institutions, Law 10/2014, of June 26, as amended 
from time to time.
    (22) ``RD 84/2015'' means Royal Decree 84/2015, of February 13, as 
amended from time to time.
    (23) ``BoS Circular 2/2016'' means Circular 2/2016, of February 2, 
of the Bank of Spain, as amended from time to time.
    (24) ``Prudentially regulated'' means a Covered Entity that has a 
``prudential regulator'' as that term is defined in Exchange Act 
section 3(a)(74).

    By the Commission.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2021-23444 Filed 10-27-21; 8:45 am]
BILLING CODE 8011-01-P


