Representative Cummings Criticizes SBS Waiver Request Provision
Commentary by Steven Lofchie
Representative Elijah E. Cummings (D-MD) expressed concerns about the SEC's proposed rule regarding waiver requests and security-based swaps ("SBS"), titled: "Applications by Security-Based Swap Dealers or Major Security-Based Swap Participants for Statutorily Disqualified Associated Persons to Effect or Be Involved in Effecting SBS’s." In a letter addressed to SEC Chair Mary Jo White, Representative Cummings stated that the proposed rule would "allow entities other than the SEC - including private entities - to grant waiver requests" and "constitute[s] the first time the [SEC] has granted executive authority to another entity without being required to do so by Congress."
Representative Cummings said that the proposed rule would:
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create a process through which waivers could be granted to entities disqualified from effecting or being involved in effecting SBSs on behalf of other SBS entities;
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permit associated persons to (i) identify purchasers, (ii) settle transactions, (iii) confirm transactions, (iv) draft and negotiate master agreements and confirmations, (v) recommend SBS transactions, (vi) execute transactions and (vii) price SBS positions;
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allow disqualified persons to associate with an SBS entity "without making a [further] application, where the SEC, CFTC, a self-regulatory organization ("SRO") or a registered futures association has granted a prior application or otherwise granted relief from a statutory disqualification with respect to the associated person [in respect of the disqualifying action]"; and
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give the CFTC and SROs "the authority to interpret the Exchange Act by allowing them to grant waivers after having 'specifically reviewed the underlying basis for each and every statutory disqualification under Exchange Act Sections 3(a)(39)(A) through (F) [("Definitions: A Person Is Subject to a 'Statutory Disqualification'"]) and made an affirmative finding.'"
Representative Cummings asserted that "any waiver decision should be reviewed by the [SEC] and voted on by the Commissioners." He also urged the SEC to (i) "make public the waiver applications it receives absent a good cause determination that they should remain under seal" and (ii) strike the proposal to make a waiver permanent if the SEC does not act within a 180-day period on the grounds that "no waiver should be granted simply because the [SEC] is constrained in its resources and cannot make a decision within a limited amount of time."
Commentary
Contrary to the assertion in Rep. Cummings' letter that the SEC does not delegate tasks to other entities, numerous tasks, in fact, are delegated by the SEC to FINRA and the other self-regulatory organizations, and many of those tasks are far more significant than those set out in Chair White's proposal. As a practical matter, the SEC delegates the entire task of registering broker-dealers and qualifying their employees to FINRA. Further, the CFTC delegates the entire task of registering futures commission merchants, commodity pool operators and commodity trading advisors, as well as their employees, to the NFA. If Congress really wanted the SEC to take on the jobs that FINRA now performs on the SEC's behalf, then it would have to add significantly more money to the SEC's budget and perhaps double it. (Never mind the fact that the SEC likely does not have the budget for the tasks that it has on its plate now.)
Representative Cummings might demand that waiver applications should be made public, but even if no action were taken on them, the question to be asked is why? Many of these applications are for waivers for matters that have nothing to do with the securities laws, such as drunk-driving convictions, and there would seem no reason to force public embarrassment on people who apply for waivers for that reason, or indeed for any waiver that is rejected.
Instead of criticizing the SEC for respecting the waiver decisions of the CFTC, Representative Cummings should praise the SEC for attempting to be efficient and not wasting taxpayers' assets. Is it really necessary, given the important work with which the SEC and the CFTC are tasked, and their limited resources for accomplishing it, that they duplicate efforts on matters of relatively little import? Can the SEC and the CFTC really not trust one another, or the self-regulatory organizations that they oversee, to review applications effectively?