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SEC Commissioner Lays out Agenda for Security-Based Swap Rules's picture
Commentary by Nihal Patel

SEC Commissioner Hester Peirce laid out an agenda for implementing the agency's security-based swap rules under Title VII of Dodd-Frank. Ms. Peirce said that the SEC should act "expeditiously" to complete the rules necessary to trigger the registration of security-based swap dealers ("SBSDs").

In remarks before the 2018 ISDA Annual North America Conference, Ms. Peirce outlined a series of principles and initiatives that should guide the SEC as it seeks to complete the rulemaking for, and implementation of, the statutory scheme for the regulation of security-based swaps and SBSDs. Ms. Peirce described four core principles as the SEC implements Title VII rules: (i) the SEC rules must "effectively and efficiently" advance the objectives of the Title VII without imposing "unnecessary" burdens on the marketplace; (ii) the SEC needs to adopt clear rules and provide its own guidance instead of relying on prior staff no-action letters; (iii) the SEC must account for the challenges that market participants may face as they come into compliance with a new regulatory structure, including, among other things, by providing "adequate time to prepare for and then comply with [the requirements]"; and (iv) the SEC must carefully consider the effect of the SEC rules outside of the United States.

Ms. Peirce noted that the ongoing work by SEC commissioners and staff has been "intense over the last several months," and that the agency will be "considering a variety of actions over the coming weeks and months." She reported that the SEC scheduled an open meeting to reopen the comment period on the SBSD rules governing capital, margin and collateral segregation. Beyond finalizing these rules, and two others required for SBSD registration to begin (in particular, SBSD books and records and a rule governing the process for requesting waivers of statutorily disqualified associated persons), the SEC should reconsider certain other approaches previously taken, she said. These include:

  • the certification and opinion of counsel requirements included as part of the registration rules;
  • the scope of the associated person definition and related background checks;
  • whether it is appropriate to impose certain risk mitigation requirements on SBSDs; and
  • whether the SEC should seek alternative approaches to the application of rules to transactions that are "arranged, negotiated or executed" in the United States.

Ms. Peirce also noted that firms will have many decisions to make before choosing whether to register, and she expressed concern that the compliance timeline should create an "orderly registration process."

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