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October 31, 2018

SEC issued a statement setting out its position, for a limited time period, that certain actions with respect to specific provisions of the SEC Business Conduct Standards for security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs) will not provide a basis for SEC enforcement action. The statement also addresses the position on the ability of parties to security-based swaps to rely on written representations previously provided in relation to swaps—also for a limited time period. The statement applies only until five years after the compliance date for security-based swap entity registration rules. The statement will be effective from November 06, 2018.

CFTC, in 2012, adopted business conduct rules for swap dealers and major swap participants. To assist the swaps industry in implementing and complying with the CFTC’s Business Conduct Rules, industry participants developed standardized counterparty relationship. In 2016, pursuant to Section 15F of the Securities Exchange Act of 1934, SEC adopted final rules imposing business conduct standards for security-based swap dealers and major security-based swap participants. SEC endeavored to harmonize its rules with analogous CFTC requirements where possible to create efficiencies for entities that have already established infrastructure for compliance with analogous CFTC requirements. In certain instances, however, the SEC requirements and the associated representations, which would be required under standardized counterparty relationship documentation, diverge from those of the analogous CFTC requirements, which are reflected in the existing standardized counterparty relationship documentation. Market participants have expressed concerns about practical compliance difficulties presented by certain differences. 

The SEC statement is intended to minimize potential market disruptions to the existing counterparty relationships resulting solely from documentation implementation issues that may arise when security-based swap dealers and major security-based swap participants are required to register with SEC. Upon registration with SEC, entities that are also registered with CFTC will be required to comply with both the SEC Business Conduct Standards as well as the analogous rules adopted by CFTC in 2012. 


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Effective Date: November 06, 2018

Keywords: Americas, US, Securities, SBSD, MSBSP, Business Conduct, CFTC, SEC

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