The Securities and Exchange Commission published a notice in the Federal Register on December 2, 2025, soliciting public comments on the proposed extension of an information collection associated with Rule 3a71-3(d) under the Securities Exchange Act of 1934. This action stems from requirements under the Paperwork Reduction Act of 1995, which mandates federal agencies to assess and minimize paperwork burdens on the public. The rule in question addresses exceptions for non-U.S. entities engaged in security-based swap dealings, specifically allowing them to avoid counting transactions arranged, negotiated, or executed by U.S. personnel toward de minimis thresholds that could trigger dealer registration. By seeking input on the estimated burdens and practical utility of this collection, the SEC aims to ensure compliance monitoring remains effective without undue strain on affected parties. This development highlights ongoing regulatory efforts to balance cross-border financial oversight with operational efficiency in the derivatives market.
Background on Rule 3a71-3 and Security-Based Swaps
Rule 3a71-3 forms part of the SEC's framework for regulating security-based swaps, derivatives tied to securities like stocks or bonds. These instruments gained prominence after the 2008 financial crisis, prompting Congress to enact Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. This legislation divided oversight between the SEC for security-based swaps and the Commodity Futures Trading Commission for other swaps, aiming to reduce systemic risk through registration and reporting requirements.
Under the Exchange Act, entities engaging in substantial dealing activity in security-based swaps must register as dealers if they exceed de minimis thresholds, currently set at $3 billion in notional amount for credit default swaps and $150 million for others over a 12-month period. For non-U.S. persons, Rule 3a71-3 requires counting transactions where U.S. personnel are involved in arranging, negotiating, or executing deals, even with non-U.S. counterparties. This 'arranged, negotiated, or executed' test, often abbreviated as ANE, prevents regulatory arbitrage by ensuring U.S.-based activities fall under SEC jurisdiction.
Rule 3a71-3(d), adopted in 2016 and amended over time, provides a conditional exception to this ANE counting requirement. It allows non-U.S. entities to rely on affiliated registered dealers or brokers for certain functions, provided they meet conditions like using personnel from 'listed jurisdictions' – foreign regulatory regimes deemed comparable by the SEC. This exception supports global firms in managing compliance while facilitating market access.
Details of the Information Collection and Compliance Requirements
The information collection under OMB Control Number 3235-0771 is tied directly to the conditions of Rule 3a71-3(d). Non-U.S. entities seeking the exception must ensure that affiliated registered security-based swap dealers or brokers handle relevant transactions and maintain records to demonstrate compliance. This includes documentation of transaction details, personnel involvement, and adherence to listed jurisdiction standards.
Applications for listed jurisdiction status can come from the entities themselves or foreign financial authorities, with the SEC estimating that most will originate from regulators. The collection enables the SEC to verify that exceptions are not abused, ensuring only qualifying transactions are exempted from de minimis calculations. As stated in the notice, 'the information is used by the Commission to monitor compliance with the exception to provisions of Exchange Act Rule 3a71-3.' Failure to comply could result in entities inadvertently crossing registration thresholds, leading to mandatory dealer status with its attendant capital, reporting, and conduct rules.
The SEC's framework draws from precedents like the cross-border application of swap rules, influenced by cases such as the 2013 CFTC guidance on extraterritoriality and subsequent SEC harmonization efforts. Key players include the SEC's Division of Trading and Markets, which oversees implementation, and the Office of Management and Budget, responsible for approving collections under the Paperwork Reduction Act.
Estimated Burdens and Economic Implications
The notice provides detailed estimates of the paperwork burdens, unchanged from prior assessments but adjusted for inflation. The SEC anticipates up to 24 entities may rely on the exception annually, each using an affiliated registered entity for compliance. The aggregate annual reporting burden is calculated at approximately 235,242 hours across all respondents, encompassing recordkeeping, disclosures, and applications.
Monetized costs are estimated at about $1,359,779 per year, covering personnel time and potential external services. These figures derive from assumptions about entity size, transaction volume, and automation use, with a breakdown available in the SEC's supporting statement. For context, this burden represents a fraction of the broader security-based swap market, where notional amounts exceed trillions annually, but it underscores the compliance costs for international firms.
From an industry perspective, trade groups like the Securities Industry and Financial Markets Association have historically advocated for streamlined exceptions to avoid fragmenting global markets. Regulators, conversely, emphasize the need for robust oversight to prevent risks similar to those in the AIG collapse during the financial crisis. Short-term implications include potential adjustments based on comments, while long-term effects could influence how non-U.S. firms structure U.S. operations, possibly encouraging more registrations or relocations.
Solicitation of Public Comments
Under the Paperwork Reduction Act, the SEC must publish notices and solicit feedback before extending collections. Comments are invited on four areas: the necessity and utility of the information, the accuracy of burden estimates, ways to improve quality and clarity, and methods to minimize burdens, such as through technology.
Submissions are due by February 2, 2026, directed to Austin Gerig, the SEC's Chief Data Officer, with a second comment period to follow a 30-day notice. This process reflects democratic elements in rulemaking, allowing stakeholders – from financial firms to advocacy groups – to shape outcomes. Historical comment periods for similar rules have led to refinements, as seen in the 2020 amendments to security-based swap reporting.
In conclusion, the SEC's notice on Rule 3a71-3(d) reinforces the agency's commitment to efficient regulation of cross-border derivatives. Key takeaways include the estimated compliance burdens and the opportunity for public input, which could refine the rule's application. Looking ahead, potential next steps involve analyzing comments, possible revisions to estimates, and OMB approval, which must occur before the current control number expires. Ongoing debates may center on balancing regulatory reach with market competitiveness, especially amid evolving global standards from bodies like the International Organization of Securities Commissions. Challenges include adapting to technological advancements in trading and ensuring equitable burdens across jurisdictions, fostering continued dialogue among regulators, industry, and policymakers.
