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

    February 04, 2020

    SEC adopted final rules and guidance related to the security-based swaps (SBS) regime in the US. One set of the adopted rules concerns the application of specific risk-mitigation techniques to portfolios of uncleared security-based swaps. The compliance date is discussed in Section V of the adopting release. Additionally, SEC adopted a package of rule amendments, guidance, and a related order to expand and improve the framework for regulating cross-border security-based swaps, including single-name credit default swaps. The final rules on risk mitigation techniques and the cross-border regulation of security-based swaps will become effective on April 06, 2020.

    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

     

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    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

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