SIFMA Submits Comments to SEC on Recordkeeping and Reporting Proposal (with Lofchie Comment)

SIFMA submitted detailed comments to SEC Deputy Secretary Kevin O'Neill regarding the SEC's proposed recordkeeping, reporting, notification and security count requirements for security-based swap dealers ("SBSDs"), major security-based swap participants ("MSBSPs") and broker-dealers that enter into swaps.

SIFMA noted that, in a number of places, the SEC Recordkeeping Proposal would prescribe recordkeeping or reporting requirements based on requirements in other rules that have been proposed by the SEC but have not yet been adopted; in particular, requirements relating to capital, margin and segregation for SBSDs and MSBSPs. SIFMA stated that it has provided comments on many of those proposals, and requested that the SEC consider those comments before adopting any portion of the security-based swap regime. The principal themes of the SIFMA comment letter included the following:

• SEC recordkeeping requirements should be harmonized with those of other regulators, including those of the CFTC, prudential [bank] regulators and non-U.S. regulators;
• the use of legal entity identifiers to track counterparties should be made mandatory [regulated entities rarely ask that a requirement be made mandatory];
• Firms should not be required to keep order tickets in respect of negotiated transactions where no "order" is given [this issue has relevance for trading in the debt markets as well as the swaps markets];
• Firms should be given greater flexibility as to the manner in which records are kept;
• The rules relating to recordkeeping storage should be reexamined; and
• Recordkeeping requirements should take account of non-U.S. privacy laws.

Although the SEC's previously proposed margin and capital rules were not the letter's central theme, it did state that the SEC's proposed minimum capital requirements for firms holding security-based swaps for customers were too high.

Lofchie Comment: Although the comment letter does not address the issue of regulatory structure, one of its underlying themes is how complex the regulatory structure has become, with numerous different regulators having jurisdiction to set requirements (in this case, recordkeeping requirements) for transactions of essentially the same type (swaps or security-based swaps) and potentially entered into by different types of entities. In effect, the variations between their requirements becomes a tax on the financial system and, thus, a burden on the economy as regulated firms and customers entering into regulated transactions must build regulatory compliance systems that can handle these somewhat differing requirements.

See: SIFMA Comment Letter. Related news: Cadwalader C&F Memo: SEC Proposes Rules for Security-Based Swap Dealers and Major Participants (April 17, 2014) SEC Proposes Rules for Security-Based Swap Dealers and Major Participants (Fed. Reg.) (with Cadwalader Memo) (May 2, 2014).