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SEC Adopts Cross-Border Security-Based Swap Rules (with Lofchie Comment)

The SEC announced that it has adopted its cross-border rules for securities-based swaps ("SBS"). According to the press statement, the rules address the following areas:

  • situations where a cross-border SBS must be counted towards an entity's dealing total for purposes of the de minimis exemption;
  • procedures as to substituted compliance; and
  • an anti-fraud rule.

The SEC's definition of "U.S. person" is generally similar to that in the SEC's original proposal, and is narrower than that in the CFTC guidance as to cross border swap activities, particularly as applied to non-U.S. funds that have U.S. investors or contacts.

The rule will provide express guidance as to how guarantees should be treated for purposes of determining the location of a swap; i.e., whether it is deemed to be entered into by a U.S. person.

Lofchie Comment: All of the Commissioners voted in favor of the rule adoption and all of them issued statements explaining that support, although the support varied in degrees of enthusiasm. Particularly notable among the statements lacking enthusiasm was that of Commissioner Stein who indicated that she believed that the SEC had been insufficiently aggressive in asserting jurisdiction over subsidiaries of U.S. entities operating abroad. In expressing her dissatisfaction with the jurisdictional breadth of the SEC's rulemaking, she stated that "the Commission is pretending we don't have some of these tools [i.e., legal jurisdiction to regulate transactions occurring outside the United States] so that we can justify adopting this particular rule in this particular form."

See: Text of Final Rules; SEC Press Release and Fact Sheet of Rules and Guidance.See also: Chair White's Opening Statement; Commissioner Gallagher's Statement; Commissioner Piwowar's Statement; Commissioner Aguilar's Statement; Commissioner Stein's Statement; SIFMA Comments on Approval of Rules.

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