Certain Offers of Security-Based Swaps Do Not Require Registration under the Securities Act (with Lofchie Comment)
The SEC issued a proposed rule which provides that certain communications involving security-based swaps that may be purchased only by eligible contract participants will not be deemed to constitute offers for purposes of Securities Act Section 5 ("Prohibitions Relating to Interstate Commerce and the Mails") and thus would not be subject to the prospectus delivery or registration requirements of the Securities Act.
Under the proposed rule, the publication or distribution of price quotes relating to security-based swaps that may be purchased only by persons who are eligible contract participants and are traded or processed on or through a facility that is (i) registered as a national securities exchange, (ii) registered as a security-based SEF, or (iii) exempt from registration as a security-based SEF pursuant to SEC rules, would not be deemed to constitute an offer, an offer to sell, or a solicitation of an offer to buy or purchase such security-based swaps, or any guarantees of such security-based swaps that are securities under Securities Act Section 5.
Comments on the proposed rule will be due 60 days after the publication of the proposal in the Federal Register, which is expected shortly.
Lofchie Comment: The proposed rule deals with a technical issue. As a result of the adoption of Dodd-Frank, security-based swaps are "securities" within the meaning of the securities laws. Dodd-Frank also requires that certain of such swaps be offered in a manner that is visible to the public (and thus would potentially deprive the offer of the availability of the Securities Act private placement registration exemption). The proposed rule would simply provide that, so long as any counterparty to the security-based swap is in fact a permitted counterparty (an "eligible contract participant"), the public offer of the transaction, as required by Dodd-Frank, would not be deemed to violate the Securities Act.