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SEC Adopts Amended Cross-Border Rule Concerning "ANE" Transactions (with Delta Strategy Group Summary)'s picture
Commentary by Nihal Patel

The SEC voted to adopt amendments to SEA Rule 3a71-3 that affect a non-U.S. firm with personnel located in a U.S. branch or office who are used to "arrange, negotiate, or execute" ("ANE") a security-based swap ("SBS") transaction in connection with the firm's dealing activity ("ANE Transaction"). The amended cross border rule requires these non-U.S. firms to count such transactions when determining whether the firm's threshold of dealing requires it to register as an SBS dealer. The SEC also adopted changes to related rules.

The final rule will become effective 60 days after publication in the Federal Register, but compliance is not required until the later of either 12 months following publication in the Federal Register or the "SBS Entity Counting Date" (two months prior to the registration compliance date – which itself will occur six months after the SEC adoption of a number of substantive rules governing SBS dealer activities).

The SEC did not adopt aspects of the proposal relating to the implications of ANE Transactions beyond SBS dealer registration (i.e., whether business conduct and other requirements would be implicated). Instead, it reopened the comment periods for those aspects of the proposal.

The SEC indicated that the final rule amendments are "generally consistent with [the] proposal." A Cadwalader memorandum summarizing the SEC proposal is available here.


As it did in the initial proposal, the SEC defined "arranged, negotiated or executed" in the adopting release not by rule but by discussion. The SEC stressed repeatedly that its focus for the use of these terms is on "market-facing" activities. Readers might want to read the discussion of these and other terms on pages 83-93. Highlights include the following:

  • The rules address whether "sales or trading personnel" perform market-facing functions and not "internal functions" (such as trade processing and other back-office activities).

  • A transaction designer's mere presence in the United States would not bring the transaction within the scope of the rules without direct communications (or "execution").

  • "Execution" refers to an act that causes a person to be "irrevocably bound" to an SBS under applicable law. This would not include the "ministerial task of entering transactions" on books.

  • The "negotiation" prong of the rules would not include negotiations of master agreements or related documentation but would focus instead on the negotiation of "specific economic terms of a particular [SBS] transaction." (The rule also would not bring a transaction within its scope "solely on the basis that a U.S.-based attorney is involved in negotiations regarding the terms of the transaction.")

  • The rule includes a "supervisory" concept: personnel in the United States who direct others to effect an ANE Transaction would be sufficient to bring the transaction within the rule's scope.

The SEC also provided guidance to firms on aspects of the compliance process. It noted its expectation that non-U.S. firms "should be able to identify for purposes of ongoing compliance the specific sales and trading personnel whose involvement in market-facing activity [would bring a transaction within the rule's scope]." The SEC also noted that its interpretation of the term "personnel" is consistent with the definition of "associated person of [an SBS dealer]" in SEA Section 3(a)(70).

The impact of these rules on policy may be unfortunate as the result may be to provide strong incentive for firms to refrain from employing personnel in the United States. (Compare Bernstein/Sondheim's "America" with Reznor's remix of Bowie/Eno's "I'm Afraid of Americans.")

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