FINRA Proposes to Extend Expiration Date of Rule 0180 ("Application of FINRA Rules to Security-Based Swaps")

FINRA filed a proposed rule change with the SEC to extend the expiration date of FINRA Rule 0180 ("Application of Rules to Security-Based Swaps") to February 11, 2016. Generally, the extension has the effect of disapplying most of FINRA's rules to security-based swaps, even though such transactions are "securities" for purposes of the Securities Exchange Act.

Regarding the extension of its July 2011 order granting temporary exemptive relief, FINRA explained that it is "appropriate and in the public interest" to extend Rule 0180 so as to "avoid undue market disruptions resulting from the change of the definition of 'security'" under the Securities Exchange Act, at least in cases in which the SEC has not itself adopted rules to govern security-based swaps. FINRA stated that it will amend the expiration date of Rule 0180 in subsequent filings as necessary. That way, the expiration date will be coterminous with the termination of relevant provisions of the SEC's temporary exemptions.

Notwithstanding the disapplication of the FINRA Rules generally, the following specific FINRA Rules do apply to security-based swaps: those that prohibit fraudulent or sharp conduct and those that require compliance with Anti-Money-Laundering procedures, as well as the FINRA margin requirements that are applicable to credit default swaps.

See: Text of Proposed Rule.