SEC Adopts Final Rules and Guidance Related to Security-Based Swaps

Rule on Risk Mitigation Techniques—These rules establish a coherent approach to the regulation of margin, capital, segregation, recordkeeping and reporting, and business conduct for security-based swaps. The compliance dates for this set of rules have been discussed in Part X.B of the final release. The new rules 15Fi-3, 15Fi-4, and 15Fi-5 establish requirements for registered security-based swap dealers and major security-based swap participants to:

• Periodically reconcile outstanding security-based swaps with counterparties
• Engage in certain forms of portfolio compression exercises, as appropriate
• Execute written trading relationship documentation with each of their counterparties prior to, or contemporaneously with, executing a security-based swap transaction

Rule on Cross-Border Application of SBS Requirements—The adoption of this package also stands up the broad security-based swap regulatory regime as it triggers the compliance date for security-based swap entities to register with SEC and the implementation period for previously adopted rules under the Dodd-Frank Act. The compliance dates have been discussed in Part X.B of the final release. The final rule amendments and guidance build on the experience with the multi-faceted, multi-jurisdictional security-based swap market, and prior SEC actions, in four key areas:

• Use of transactions that have been “arranged, negotiated, or executed” by personnel located in the United States as a trigger for enhanced U.S. regulation of security-based swaps and market participants
• Requirement that nonresident security-based swap dealers and major security-based swap participants (collectively known as SBS entities) provide a certification and opinion of counsel regarding the ability of SEC to access information and conduct onsite examinations
• Cross-border application of statutory disqualification provisions
• Questionnaires or employment applications that registered SBS entities must maintain with regard to their foreign associated persons

Related Links

• Press Release on Risk Mitigation Techniques
• Final Rule on Risk Mitigation Techniques
• Press Release on Cross-Border Application of SBS Requirements
• Final Rule on Cross-Border Application of SBS Requirements
• Order Designating Certain Jurisdictions as Listed Jurisdictions
  

Effective Date: April 06, 2020

Keywords: Americas, US, Banking, Securities, Security-Based Swaps, Swap Participants, Dodd Frank Act, Risk Mitigation, Reporting, Swaps, Credit Default Swap, SEC