SEC Proposes Rule on Risk Mitigation Techniques for Uncleared SBS
SEC proposed a rule that would require the application of specific risk-mitigation techniques to portfolios of security-based swaps (SBS) that are not submitted for clearing. Comments should be received on or before April 16, 2019.
The proposal would establish requirements for each registered SBS dealer and each registered major SBS participant with respect to the following:
- Reconciling outstanding SBS with applicable counterparties on a periodic basis
- Engaging in certain forms of portfolio compression exercises, as appropriate
- Executing written SBS trading relationship documentation with each of its counterparties prior to, or contemporaneously with, executing a SBS transaction
In addition, SEC proposed an interpretation to address the application of the portfolio reconciliation, portfolio compression, and trading relationship documentation requirements to cross-border SBS activities. SEC also proposed to amend Rule 3a71-6 to address the potential availability of substituted compliance in connection with those requirements. Moreover, the proposed rules would make corresponding changes to the recordkeeping, reporting, and notification requirements applicable to SBS entities. Finally, SEC requested comments on the way certain aspects of the proposed rules address how an SBS data repository could potentially satisfy its obligation to verify the terms of each SBS with both counterparties to the transaction.
SEC had previously adopted rules requiring SBS entities to provide trade acknowledgments and to verify those trade acknowledgments with their counterparties to security-based swap transactions; however, it had not proposed rules concerning portfolio reconciliation, portfolio compression, or trading relationship documentation. By contrast, CFTC has implemented rules setting forth standards for the timely and accurate confirmation of swaps, addressing the reconciliation and compression of swap portfolios, and setting forth requirements for documenting the swap trading relationship between swap dealers or major swap participants and their counterparties. Accordingly, SEC has now proposed the requirements applicable to SBS entities.
Related Link: Federal Register Notice
Comment Due Date: April 16, 2019
Keywords: Americas, US, Banking, Securities, Security-based Swaps, Swap Participants, Dodd Frank Act, Risk Mitigation, Reporting, CFTC, SEC
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
David Fihrer
Skilled life insurance actuary; subject matter expert on IFRS 17 and source of earnings
Previous Article
HKMA Revises Guideline on Application of Banking Disclosure RulesRelated Articles
BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
EBA Publishes Multiple Regulatory Updates for Regulated Entities
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
APRA Consults on Prudential Standard for Operational Risk
The Australian Prudential Regulation Authority (APRA) is seeking comments, until October 21, 2022, on the introduction of CPS 230, which is the new cross-industry prudential standard on operational risk management.
EC Amends Rule on Securitizations; ESRB Updates Reciprocation Measures
The European Commission published a Delegated Regulation 2022/1301 on the information to be provided in accordance with the simple, transparent, and standardized (STS) notification requirements for on-balance-sheet synthetic securitizations.
APRA Announces Revisions to Capital Framework for Banks
The Australian Prudential Regulation Authority (APRA) is announced revisions to the capital framework for authorized deposit-taking institutions to implement the "unquestionably strong" capital ratios and the Basel III reforms.
EBA Examines Remuneration Data and Use of Large Exposure Exemptions
The European Banking Authority (EBA) published a report that examines the use of certain exemptions included in the large exposures regime under the Capital Requirements Regulation (CRR).
UK Authorities Publish Discussion Paper on Critical Third Parties
The Bank of England (BoE), the Prudential Regulation Authority (PRA), and the Financial Conduct Authority (FCA) published a joint discussion paper that sets out potential measures to oversee and strengthen the resilience of services provided by critical third parties to the financial sector in UK.
BoE Issues Update on Ongoing Data Transformation Program
The Bank of England (BoE) issued a communication to firms to provide an update on the progress of the joint data transformation program—which is being led by BoE, the Financial Conduct Authority (FCA), and the industry—for the financial sector in UK.
EBA Issues Draft Methodology and Templates for 2023 Stress Tests
The European Banking Authority (EBA) published the draft methodology, templates, and template guidance for the European Union-wide stress test in 2023.
EBA Issues SREP Guidelines and Standards for Investment Firms
The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) jointly published the final guidelines on common procedures and methodologies for the supervisory review and evaluation process (SREP) for investment firms.
