January 19, 2016

SEC Responds to Statutory Changes to SDR Indemnification Requirement

Commentary by Nihal Patel

In response to recent statutory changes, the SEC reopened the comment period for proposed amendments to SEA Rule 13n-4 related to regulatory access to security-based swap data held by security-based swap data repositories.

Section 86001 of the Surface Transportation Reauthorization and Reform Act of 2015 (known as the "FAST Act"), made changes to SEA Section 13(n)(5) to, among other things remove the requirement that any foreign entity with whom information is shared indemnifies the Security-Based Swap Data Repository ("SBSDR") and the SEC for expenses relating to the shared information. (Substantially similar changes were made to CEA Section 5b(k)(5) and 21(c).)

The SEC’s proposal included conditions under which parties could be exempted from the indemnification requirement. In light of the statutory change, the SEC asked commenters to address, among other things, how it should implement the confidentiality conditions in the law.

Comments on the proposed amendments must be submitted within 30 days after their publication in the Federal Register.

Commentary

Nihal Patel

This statutory change shows a benefit to the SEC's drawn-out approach to implementing Title VII. The delayed adoption of rules has permitted further consideration, and has even allowed for some correction of the obvious errors in Dodd-Frank. In this case, the indemnity requirement was often criticized and the SEC even recommended that Congress remove the provision. (The SEC Director of the Office of International Affairs noted the problems with the provision in his testimony before Congress in 2012, and stated that "[t]he SEC recommends that Congress consider removing the indemnification requirement. . . .") Waiting has allowed the SEC to avoid spending unnecessary time crafting a response to the statutory flaw.

By contrast, the CFTC has long since implemented its parallel rules for swap data repositories. In light of the obvious problems raised by the indemnification requirement, the CFTC was forced to adopt separately an interpretive statement that partially addressed the issue, and that was adopted despite the dissenting views of then-Commissioners Jill Sommers and Scott O'Malia (who noted that the interpretive statement did not address the relevant concerns raised by the European Securities and Markets Authority).

Primary Sources

SEC Extension of Comment Deadline

Premium Content

Available only to Premium subscribers.

SEA Rule 13n-4: Duties and core principles of security-based swap data repository.

Join Premium

US Regulatory Intelligence combines regulatory and enforcement news, analysis, and practical work tools on an easy-to-use digital platform.

Request a Free Trial