2021-22817. Order Specifying the Manner and Format of Filing Unaudited Financial and Operational Information by Security-Based Swap Dealers and Major Security-Based Swap Participants That Are Not U.S. Persons and Are Relying on Substituted ...

I. Introduction

Currently, broker-dealers are required to file on a monthly or quarterly basis the applicable part of Form X-17A-5 (“FOCUS Report”).^[1] Broker-dealers use the FOCUS Report to submit unaudited financial and operational information that is used by the Commission and broker-dealer self-regulatory organizations to monitor and supervise the firms. On September 19, 2019, the U.S. Securities and Exchange Commission (“Commission”) adopted recordkeeping, reporting, and notification requirements applicable to registered security-based swap dealers and major security-based swap participants (collectively, “SBS Entities”) and additional recordkeeping and reporting requirements for broker-dealers to account for their security-based swap activities.^[2] As part of this initiative, the Commission adopted Exchange Act rule 18a-7 (“Rule 18a-7”), amended Part II of the FOCUS Report, and adopted a new Part IIC of the FOCUS Report.^[3] Rule 18a-7 applies to SBS Entities that also are registered with the Commission as OTC derivatives dealers (a special purpose broker-dealer that must limit its business to dealing in over-the-counter derivatives) or that do not have a broker-dealer registration.^[4] Under this rule, SBS Entities that do not have a prudential regulator are required to file Part II of the FOCUS Report on a monthly basis and SBS Entities that have a prudential regulator are required to file Part IIC of the FOCUS Report on a quarterly basis.^[5] Rule 18a-7 requires SBS Entities to file Part II or Part IIC of the FOCUS Report with the Commission or its designee.^[6] The Commission has designated the Financial Industry Regulatory Association, Inc. (“FINRA”) as the organization with which SBS Entities must file Part II or Part IIC of the FOCUS Report.^[7]

Exchange Act rule 3a71-6 (“Rule 3a71-6”) conditionally provides that SBS Entities that are not U.S. persons may satisfy certain requirements under Exchange Act section 15F, including Rule 18a-7, by complying with comparable regulatory requirements of the SBS Entity's home jurisdiction.^[8] Pursuant to Rule 3a71-6, the Commission has issued orders granting conditional substituted compliance with respect to certain requirements applicable to SBS Entities subject to regulation in France, Germany, and the United Kingdom (“substituted compliance orders”).^[9] The substituted compliance orders permit certain SBS Entities in those jurisdictions (“Covered Entities”) to apply substituted compliance for specified Exchange Act requirements.

The substituted compliance orders permit a Covered Entity to satisfy the requirements of Rule 18a-7 with respect to filing Part II or Part IIC of the FOCUS Report by being subject to and complying with specified requirements in the Covered Entity's home jurisdiction, subject to additional conditions designed to help ensure comparability of regulatory outcomes. In particular, the conditions for applying substituted compliance with respect to Rule 18a-7 are that the Covered Entity: (1) Is subject to and complies with the relevant comparable requirements of the home jurisdiction; (2) 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 (“GAAP”) that the Covered Entity uses to prepare general purpose publicly available or available to be issued financial statements in the home jurisdiction (“manner and format condition”); (3) applies substituted compliance for the capital requirements of Exchange Act rules 18a-1 through 18a-1d (collectively, “Rule 18a-1”) if the Covered Entity does not have a prudential regulator; ^[10] and (4) applies substituted compliance for the record preservation requirements of Exchange Act rule 18a-6(b)(1)(viii) (“Rule 18a-6(b)(1)(viii)”) if the Covered Entity does not have a prudential regulator.^[11]

This order specifies how a Covered Entity must meet the manner and format condition in a substituted compliance order.^[12] Finally, in response to the Commission's proposed substituted compliance orders with respect to Germany, France, and the United Kingdom, commenters made suggestions about the manner and format condition.^[13] The comments, and the Commission's response to them, are discussed below.

II. Discussion

A. Manner of Filing

i. Use Part II or IIC of the FOCUS Report and the eFOCUS System Administered by FINRA

Most broker-dealers registered with the Commission currently file the applicable part of the FOCUS Report with FINRA through the eFOCUS system (“FINRA eFOCUS system”). As noted above, the Commission has designated FINRA to receive Part II and Part IIC of the FOCUS Report filed by SBS Entities pursuant to Rule 18a-7, including SBS Entities that are not broker-dealer members of FINRA. FINRA will administer a separate eFOCUS system to be used by SBS Entities that are not broker-dealer members of FINRA to file the FOCUS Report Part II and Part IIC (as applicable) (“SEC eFOCUS system”). Under this order, a Covered Entity must file the financial and operational information in the format discussed below with the Commission through the SEC eFOCUS system administered by FINRA.^[14] The SEC eFOCUS system is modelled closely on the FINRA eFOCUS system. Using the SEC eFOCUS system will enable Covered Entities applying substituted compliance with respect to Rule 18a-7 to file the FOCUS Report Part II and Part IIC (as applicable) on the same platform and to use the same preexisting templates, software, and procedures as SBS Entities that are not members of FINRA. Further, the Commission staff will have access to the SEC eFOCUS system and the FINRA eFOCUS system (collectively, the “eFOCUS systems”) and information filed on those systems will be provided to the Commission staff to maintain a separate database. The staff will use its access to the eFOCUS systems and the database to monitor the financial condition of firms and to perform cross-firm analysis to identify trends and areas meriting further regulatory focus as well as to perform economic analyses. Requiring Covered Entities to use the SEC eFOCUS system to file the required financial and operational information will facilitate integrating the information with the financial and operational information of broker-dealers (some of which will be registered as security-based swap dealers) and SBS Entities that are not applying substituted compliance with respect to Rule 18a-7. This will enhance the Commission's ability to monitor and supervise these firms.

ii. Frequency and Timing of Filing

Rule 18a-7 requires an SBS Entity that is not prudentially regulated to file Part II of the FOCUS Report seventeen business days after the month end and an SBS Entity that is prudentially regulated to file Part IIC of the FOCUS Report thirty calendar days after the quarter end.^[15] In response to proposed substituted compliance orders, the Commission received comments requesting that Covered Entities be permitted to file their financial and operational information with the same frequency that they file financial reports in their home jurisdictions (typically quarterly).^[16] A commenter further requested that the deadline for filing the financial and operational information with the Commission be extended to 14 calendar days after the filing in their home jurisdiction is due, except the commenter requested 30 calendar days in the case of a filing that covers a period ending on the firm's fiscal year end.^[17]

The commenter's requests would substantially delay (in some cases by multiple months) the reporting of financial and operational information by Covered Entities. Consequently, for the reasons discussed below, the Commission does not believe it would be appropriate to permit the extended timeframes for reporting this information requested by the commenter. The Commission—when amending Rule 3a71-6 to make substituted compliance available for Rule 18a-7—explained the importance of reporting.^[18] In particular, the reporting requirements are integral to the ability of the Commission to effectively examine and inspect regulated firms' compliance with applicable securities laws.^[19] Further, the reports are used to determine which firms are engaged in various securities-related activities, and how economic events and government policies may affect segments of the securities industry.^[20] In addition, the reports are important for protecting customers against the risks involved in having their securities held by a third party.^[21] Finally, the reporting requirements promote transparency of the financial and operational condition of firms registered with the Commission.^[22] In light of these considerations, Rule 3a71-6 states, in pertinent part, that prior to making a substituted compliance determination regarding SBS Entity reporting requirements, the Commission intends to consider (in addition to any conditions imposed) whether the foreign financial regulatory system's required reports, the timeframes for reporting information, the accounting standards governing the reports, and the required format of the reports are comparable to applicable provisions arising under the Exchange Act and its rules and regulations and would permit the Commission to examine and inspect regulated firms' compliance with applicable securities laws.^[23]

Rule 18a-7 requires SBS Entities without a prudential regulator to file the FOCUS Report Part II on a monthly basis 17 business days after the end of the month. As stated above, the commenter requests that Covered Entities without a prudential regulator be permitted to file the financial and operational information on a quarterly basis (if that is the filing frequency in their home jurisdiction) and 14 or 30 days after the deadlines for filing information in their home jurisdiction. Permitting quarterly filing and tying the deadline to local requirements would significantly delay the Commission's receipt of the financial and operational information and result in the filing of information that is multiple months old. Therefore, for the reasons discussed above, the Commission does not believe it would be appropriate to permit the timeframes requested by the commenter. However, the Commission does believe it would be appropriate to permit the filing deadline to be 35 calendar days after the month end. This would align with the 35-day filing deadline for Covered Entities with a prudential regulator (discussed below).

Rule 18a-7 requires SBS Entities with a prudential regulator to file the FOCUS Report Part IIC 30 calendar days after the end of the quarter. The commenter requests that Covered Entities with a prudential regulator be permitted to file the financial and operational information 14 or 30 days after the deadlines for filing information in their home jurisdiction. As discussed above, tying the deadline to local requirements would significantly delay the Commission's receipt of the financial and operational information and result in the filing of information that is several months old. Therefore, for the reasons discussed above, the Commission does not believe it would be appropriate to permit the timeframes requested by the commenter. However, the Commission believes it would be appropriate to permit the filing deadline to be 35 days after the quarter end. The Commission understands that the U.S. prudential regulators permit certain U.S. banks to file their financial reports 35 days after the quarter end. The Commission does not believe this modest increase in the number of days Covered Entities have to file the FOCUS Report Part II or Part IIC would implicate the concerns discussed above about receiving stale information.

Under the order, a Covered Entity without a prudential regulatory must file the FOCUS Report Part II 35 calendar days after the end of the month.^[24] A Covered Entity with a prudential regulator must file the FOCUS Report Part IIC 35 calendar days after the end of the quarter.^[25]

B. Format of Filing

i. Complete a Specified Set of Line Items on the FOCUS Report

Part II and Part IIC of the FOCUS Report elicit financial and operational information about the filer through sections consisting of uniquely numbered line items. The information ( e.g., a number or dollar amount) is entered into the line items. Under Rule 18a-7, an SBS Entity must use Part II or Part IIC of the FOCUS Report to submit required financial and operational information by filling out all applicable line items on the form. Commenters requested that Covered Entities be allowed to file other reports instead of or in combination with extracts from filings made with home country supervisors in lieu of filing the information elicited in Part II or Part IIC of the FOCUS Report.^[26]

As discussed above, the Commission's ability to monitor and supervise SBS Entities will be facilitated by having all firms file periodic unaudited financial and operational information through the eFOCUS systems. The eFOCUS systems are configured to receive information formatted to Part II and Part IIC of the FOCUS Report and the line items contained on the forms. Consequently, information formatted to other types of report templates or free-form information cannot be input into the systems. Moreover, having all firms enter information in the uniquely numbered line items on Part II or Part IIC of the FOCUS Report will facilitate cross firm comparisons. If firms use different forms or report information without using the template of a common form, the Commission staff would need to manually merge the data, and even then, there would be omissions when the other form does not have a parallel line item.

However, the Commission sought comment in the proposed substituted compliance orders for Germany, France, and the United Kingdom on whether it would be appropriate initially for Covered Entities to report information elicited by a limited subset of the applicable line items on Part II and Part IIC of the FOCUS Report rather than all applicable line items. Commenters supported this approach and a commenter indicated the line items on the two forms that Covered Entities could complete with information that they report pursuant to other requirements.^[27] The Commission believes it would be appropriate initially to limit the line items that Covered Entities complete on Part II or Part IIC of the FOCUS Report (as applicable) to information they draw from other reports or otherwise produce. This will allow them to use existing systems and processes for calculating and producing the information reported on the FOCUS Report Part II or Part IIC (as applicable), while still producing information that will facilitate the Commission's effective oversight of these entities. During this initial period, the Commission will evaluate whether it would be appropriate to require additional information to be reported by these filers in order to achieve a comparable regulatory outcome to the FOCUS Report filing requirements of Rule 18a-7. For these reasons, the order requires Covered Entities to complete a limited set of applicable line items on Part II or Part IIC of the FOCUS Report (as applicable).^[28]

ii. Report Information On A Consolidated or Unconsolidated Basis

A commenter requested that Covered Entities be permitted to present the financial and operational information in the filings at the entity-level of the Covered Entity on either a consolidated or unconsolidated basis depending on the reporting basis the Covered Entity uses in its home jurisdiction.^[29] The Commission believes it would be appropriate for the purposes of this order to permit Covered Entities to present the information in Part II or Part IIC of the FOCUS Report (as applicable) at the entity level of the Covered Entity on the same basis (consolidated or unconsolidated) that the Covered Entity presents information in the financial reports it files in its home jurisdiction.^[30] This will avoid Covered Entities having to prepare two sets of financial statements: One for their home jurisdiction and one for the purposes of this order, while still producing information that will facilitate the Commission's effective oversight of these entities.

iii. Covered Entities Without a Prudential Regulator Must Complete the Regulatory Capital Section of Part IIC of the FOCUS Report

The Commission has issued substituted compliance orders that permit Covered Entities to apply substituted compliance with respect to the capital requirements of Rule 18a-1 applicable to Covered Entities without a prudential regulator subject to certain conditions. One of the conditions is that the Covered Entity is subject to and complies with specified capital requirements in the firm's home jurisdiction. The capital requirements in the home jurisdictions addressed in the substituted compliance orders are based on the international capital standard for banks (“Basel capital standard”).^[31] Part IIC of the FOCUS Report—because it is used by prudentially regulated SBS Entities—includes a section to report the firm's capital computation under the Basel capital standard. Conversely, Part II of the FOCUS Report includes sections to report capital computations under Exchange Act rule 15c3-1 ^[32] and Rule 18a-1. It does not contain a section to report a capital computation under the Basel capital standard. Moreover, as discussed above, substituted compliance with Rule 18a-7 is conditioned on a Covered Entity without a prudential regulator applying substituted compliance with respect to Rule 18a-1.

For these reasons, the order provides that Covered Entities without a prudential regulator must complete the Regulatory Capital section from Part IIC of the FOCUS Report, rather than completing the Computation of Net Capital and Computation of Minimum Regulatory Capital Requirements sections from Part II of the FOCUS Report.^[33] Because Part II of the FOCUS Report does not include a section to calculate capital under the Basel capital standard, the version of that form attached to this order has been modified to include the capital calculation section from Part IIC of the FOCUS Report.

iv. Report Basel Capital Standard Calculation Pursuant to Home Country Requirements

A commenter requested that the Commission permit a Covered Entity to complete the capital line items in the filings, if the FOCUS Report Part IIC is used as the filing form, in a manner consistent with its home jurisdiction's capital standards and related reporting requirements.^[34] The Commission believes this accommodation to local reporting requirements would be appropriate for Covered Entities with a prudential regulator and for Covered Entities without a prudential regulator applying substituted compliance for the capital requirements of Rule 18a-1. This will avoid these firms having to perform and present two Basel capital calculations (one pursuant to local requirements and one pursuant to U.S. requirements). Moreover, the Basel capital standard is an international standard that has been adopted in the U.S. and in jurisdictions where substituted compliance is available for capital. Therefore, requirements for how firms calculate capital pursuant to the Basel capital standard generally should be similar. Consequently, even though the capital section of Part IIC of the FOCUS Report requires SBS Entities to complete the Regulatory Capital section using the instructions accompanying form FFIEC 031 (“Call Report”), Covered Entities completing the capital section of Part IIC of the FOCUS Report pursuant to this order may rely on local requirements to present the information on this section of the FOCUS Report.^[35]

v. Report GAAP Used In Memo Field to the FOCUS Report

As discussed above, the manner and format condition in the Commission's substituted compliance orders requires Covered Entities to file periodic unaudited financial and operational information with the Commission or its designee in the manner and format required by Commission rule or order and present the financial information in the filing in accordance with GAAP that the Covered Entity uses to prepare general purpose publicly available or available to be issued financial statements in the home jurisdiction. Under this order, the Covered Entity must notify the Commission in a memorandum field accompanying the FOCUS Report the GAAP it uses to present the financial information in the filing.^[36] This will allow the Commission to better understand the information presented in the FOCUS Report and how it may differ from information reported by SBS Entities pursuant to U.S. GAAP.

vii. Follow FOCUS Report Instructions Unless Inconsistent With This Order

Finally, the Covered Entity must follow the instructions for completing the FOCUS Report Part II or Part IIC, as applicable, to the extent the instructions are not inconsistent with the provisions of the order.^[37] This includes presenting information in U.S. dollars (not in local currencies).^[38] However, a prudentially regulated Covered Entity filing the FOCUS Report Part IIC need not follow instructions referring to line items on the Call Report to the extent the Covered Entity does not report the required information in a Call Report pursuant to that instruction.^[39]

III. Conclusion

It is hereby ordered that a Covered Entity must meet the manner and format condition in a Commission order granting conditional substituted compliance with respect Exchange Act rule 18a-7 by:

(a)(1) If not prudentially regulated, filing through the SEC eFOCUS system a FOCUS Report Part II 35 calendar days after the end of each month; or

(2) If prudentially regulated, filing through the SEC eFOCUS system the FOCUS Report Part IIC 35 calendar days after the end of each quarter;

(b)(1) If not prudentially regulated, entering the required information on the line items (as applicable) highlighted on the FOCUS Report Part II attached as Appendix A to this order on the FOCUS Report Part II filed pursuant to paragraph (a)(1) above; or

(2) If prudentially regulated, entering the required information on the line items (as applicable) highlighted on the FOCUS Report Part IIC attached as Appendix B to this order on the FOCUS Report Part IIC filed pursuant to paragraph (a)(2) above;

(c) Presenting the information in the FOCUS Report Part II or Part IIC (as applicable) filed pursuant to paragraph (a) above at the entity level of the Covered Entity on the same basis (consolidated or unconsolidated) that the Covered Entity presents information in the financial reports it files in its home jurisdiction;

(d) Completing the Regulatory Capital section of the FOCUS Report Part IIC and presenting the information in that section in accordance with the reporting requirements of the Covered Entity's home jurisdiction;

(e) Identifying the generally accepted accounting principles being used to present the information in the FOCUS Report Part II or Part IIC (as applicable) filed pursuant to paragraph (a) above in the memo field for line item 12003, 12004, 12758, or 12759 (as applicable) of the report in the SEC eFOCUS system; and

(f) Reporting the information in the FOCUS Report Part II or Part IIC (as applicable) filed pursuant to paragraph (a) above in accordance with the instructions for those reports; except that the Covered Entity can report the information:

(1) In a manner consistent with a condition of this order, if the instruction conflicts with the condition; or

(2) In a manner consistent with the requirements of its home jurisdiction, if the instruction on the FOCUS Report Part IIC requires information submitted on the Call Report and the Covered Entity does not report the required information on a Call Report.

By the Commission.

Dated: October 14, 2021.

Eduardo A. Aleman,

Deputy Secretary.

Footnotes

1.   See 17 CFR 240.17a-5(a).

2.   See Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers, Securities Exchange Act of 1934 (“Exchange Act”) Release No. 87005 (Sept. 19, 2019), 84 FR 68550 (Dec. 16, 2019) (“Recordkeeping and Reporting Adopting Release”).

3.   Id. at 68571-88. See also 17 CFR 240.18a-7. The amendments to Part II included consolidating other FOCUS Report parts into Part II. See Recordkeeping and Reporting Adopting Release, 84 FR at 68573-74 (discussing the consolidation of Parts IIB and IICSE into Part II).

4.  SBS Entities that also are registered as broker-dealers (other than OTC derivatives dealers) are subject to the FOCUS Report filing requirements of Exchange Act rule 17a-5. 17 CFR 240.17a-5(a).

5.   See 17 CFR 240.18a-7(a)(1) and (2).

6.   See 17 CFR 240.18a-7(a).

7.   See Order Designating Financial Industry Regulatory Authority, Inc., to Receive Form X-17A-5 (FOCUS Report) from Certain Security-Based Swap Dealers and Major Security-Based Swap Participants, Exchange Release No. 34-88866 (May 14, 2020).

8.   See 17 CFR 240.3a71-6.

9.   See 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 Federal Republic of Germany, Exchange Act Release No. 90765 (Dec. 22, 2020), 85 FR 85686 (Dec. 29, 2020); 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 French Republic, Exchange Act Release No. 92484 (July 23, 2021), 86 FR 41612 (Aug. 2, 2021); 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 United Kingdom, Exchange Release No. 92529 (June 30, 2021), 86 FR 43318 (Aug. 6, 2021); Order Granting Conditional Substituted Compliance in Connection With Certain Requirements Applicable to Non-U.S. Security-Based Swap Dealers Subject to Regulation in the Swiss Confederation, Exchange Act Release No. 93284 (Oct. 8, 2021).

10.   See 17 CFR 240.18a-1 through 18a-1d.

11.   See 17 CFR 240.18a-6(b)(1)(viii). Rule 18a-6(b)(1)(viii) requires SBS Entities without a prudential regulator to preserve specified information in support of amounts included in the FOCUS Report Part II prepared as of the audit date. Id.

12.  This order applies to the manner and format condition in the existing substituted compliance orders and to any future orders that include the manner and format condition. If necessary to achieve comparable regulatory outcomes, the Commission may prescribe additional conditions in a future substituted compliance order with respect to a particular jurisdiction to tailor a Covered Entity's reliance on the manner and format condition to the relevant laws in the jurisdiction.

13.  The comments are available at: https://www.sec.gov/​comments/​s7-16-20/​s71620.htm (Germany); https://www.sec.gov/​comments/​s7-22-20/​s72220.htm (France); and https://www.sec.gov/​comments/​s7-04-21/​s70421.htm (United Kingdom).

14.   See paragraph (a) of the ordering language below. Covered Entities may file the FOCUS Reports Part II and Part IIC (as applicable) pursuant to instructions on the Commission's website if the SEC eFOCUS system is not ready to receive them by the required first filing deadline and, thereafter, until the SEC eFOCUS system is ready to receive the FOCUS Reports.

15.   See 17 CFR 240.18a-7(a)(1) and (2).

16.   See, e.g., Letter from Kyle Brandon, Managing Director, Head of Derivative Policy, SIFMA (Dec. 8, 2020) (“SIFMA Letter re: Proposed Order (Germany)”) at 8; Letter from Jan Ford, Head of Compliance, Americas and Co-Head of SBS Council, Deutsche Bank, and Gary Kane, Co-Head Institutional Client Group, Americas and Co-Head of SBS Council, Deutsche Bank (Dec. 8, 2020) (“Deutsche Bank Letter re: Proposed Order (Germany)”) at 2; Letter from Kyle Brandon, Managing Director, Head of Derivative Policy, SIFMA (Jan. 25, 2021) (“SIFMA Letter re: Proposed Order (France)”) at 16; Letter from Kyle L. Brandon, Managing Director, Head of Derivatives Policy, SIFMA (May 3, 2021) (“SIFMA Letter re: Proposed Order (UK)”) at Appendix B.

17.  SIFMA Letter re: Proposed Order (UK) at Appendix B.

18.   See Recordkeeping and Reporting Adopting Release, 84 FR at 68598.

19.   Id.

20.   Id.

21.   Id.

22.   Id.

23.   See 17 CFR 240.3a71-6; Recordkeeping and Reporting Adopting Release, 84 FR at 68598.

24.   See paragraph (a)(1) of the ordering language below.

25.   See paragraph (a)(2) of the ordering language below.

26.   See SIFMA Letter re: Proposed Order (Germany) at 8; Deutsche Bank Letter re: Proposed Order (Germany) at 2; SIFMA Letter re: Proposed Order (France) at 15.

27.   See, e.g., SIFMA Letter re: Proposed Order (UK) at Appendix B.

28.   See paragraph (b) of the ordering language below. The minimum required line items are highlighted on Part II of the FOCUS Report attached as Appendix A (if not prudentially regulated) or Part IIC of the FOCUS Report attached as Appendix B (if prudentially regulated). An SBS Entity may report information elicited in other line items on the applicable FOCUS Report if it chooses to do so. Further, as is the case with SBS Entities, Covered Entities must complete required line items if applicable. For example, under this order, Covered Entities will need to complete line items linked to Exchange rule 18a-4 (“Rule 18a-4”). 17 CFR 240.18a-4. However, the Commission expects most, if not all, Covered Entities will operate under an exemption to the segregation requirements of Rule 18a-4. Almost all the line items linked to Rule 18a-4 apply if the Covered Entity is not operating under the exemption. Therefore, a Covered Entity operating under the exemption need not complete these line items (there is a line item to indicate the firm is operating under the exemption, which will need to be completed if applicable).

29.   See SIFMA Letter re: Proposed Order (UK) at Appendix B.

30.   See paragraph (c) of the ordering language below.

31.   See, e.g., BCBS, The Basel Framework, available at: https://www.bis.org/​basel_​framework/​.

32.  17 CFR 240.15c3-1.

33.   See paragraph (d) of the ordering language below. Initially, Covered Entities without a prudential regulator will need to file the FOCUS Report Part II and the FOCUS Report Part IIC (with only the Regulatory Capital section completed in the FOCUS Report Part IIC). Eventually, the SEC eFOCUS may be configured so that Covered Entities using Part II of the FOCUS Report to meet the manner and format condition will be able to report a capital calculation under the Basel capital standard using the relevant section from the FOCUS Report Part IIC without having to separately file the FOCUS Report Part IIC.

34.   See SIFMA Letter re: Proposed Order (Germany) at 8; SIFMA Letter re: Proposed Order (France) at 15.

35.   See paragraph (d) of the ordering language below.

36.   See paragraph (e) of the ordering language below. In particular, the Covered Entity will need to report this information in the memorandum field for line item 12003 or 12004 (as applicable) of the FOCUS Report Part II if not prudentially regulated or line item 12758 or 12759 (as applicable) of the FOCUS Report Part IIC if prudentially regulated. Covered Entities may include this GAAP notice with the FOCUS Reports Part II and Part IIC (as applicable) filed pursuant to instructions on the Commission's website if the SEC eFOCUS system is not ready to receive them by the required first filing deadline and, thereafter, until the SEC eFOCUS system is ready to receive the FOCUS Reports.

37.   See paragraph (f) of the ordering language below.

38.  Covered Entities may convert local currencies at a “top-line” level to U.S. dollars at the spot rate applicable on the “as of” date of the reported amount.

39.  If the Covered Entity files a Call Report in the U.S. with a prudential regulator pursuant to the instructions for the Call Report, it should follow the instructions in the FOCUS Report Part IIC to report information in that report to the extent the same information is reported by the Covered Entity in the Call Report.