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
- 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
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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