[Federal Register Volume 76, Number 120 (Wednesday, June 22, 2011)]
[Rules and Regulations]
[Pages 36287-36307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-15432]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-64678; File No. S7-24-11]
Temporary Exemptions and Other Temporary Relief, Together With
Information on Compliance Dates for New Provisions of the Securities
Exchange Act of 1934 Applicable to Security-Based Swaps
AGENCY: Securities and Exchange Commission.
ACTION: Exemptive order.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
issuing an exemptive order granting temporary exemptive relief and
other temporary relief from compliance with certain provisions of the
Securities Exchange Act of 1934 (``Exchange Act'') concerning security-
based swaps. The Commission also is providing guidance regarding
compliance with other provisions of the Exchange Act concerning
security-based swaps that were amended or added by the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act'')
and requesting comments on such guidance and the temporary relief
granted.
DATES: This exemptive order is effective June 15, 2011. Comments must
be received on or before July 6, 2011.
ADDRESSES: Comments may be submitted, identified by File Number S7-24-
11, by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/interp.shtml); or
Send an e-mail to [email protected]. Please include
File Number S7-24-11 on the subject line; or
Use the Federal Rulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090. All submissions should refer to File Number
S7-24-11. This file number should be included on the subject line if e-
mail is used. To help us process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec/gov/rules/proposed.shtml). Comments are also available for Web site viewing
and printing in the Commission's Public Reference Room, 100 F Street,
NE., Washington DC 20549, on official business days between the hours
of 10 a.m. and 3 p.m. All comments received will be posted without
charge; the Commission does not edit personal identifying information
from submissions. You should only submit information that you wish to
make publicly available.
FOR FURTHER INFORMATION CONTACT: Jack Habert, Attorney Fellow, at (202)
551-5063; Leah Drennan, Attorney-Adviser, at (202) 551-5507; or Ann
McKeehan, Attorney-Adviser, at (202) 551-5797, Division of Trading and
Markets, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-7010.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction and Background.
II. Discussion.
A. Clearing for Security-Based Swaps.
B. Security-Based Swap Execution Facilities.
C. Segregation of Collateral in Security-Based Swaps.
D. Security-Based Swap Antifraud Provisions.
E. Position Limits for Security-Based Swaps.
F. Reporting of Security-Based Swaps.
i. Public Availability of Security-Based Swap Data.
ii. Security-Based Swap Data Repositories.
[[Page 36288]]
iii. Reporting and Recordkeeping for Security-Based Swaps.
G. Registration and Regulation of Security-Based Swap Dealers
and Major Security-Based Swap Participants.
H. Registration of Clearing Agencies for Security-Based Swaps.
I. Other Amendments to the Federal Securities Laws Relating to
Security-Based Swaps.
J. Section 29(b) of the Exchange Act.
III. Solicitation of Comments.
IV. Temporary Exemptions and Other Temporary Relief
I. Introduction and Background.
On July 21, 2010, President Barack Obama signed the Dodd-Frank Act
into law.\1\ The Dodd-Frank Act was enacted, among other reasons, to
promote the financial stability of the United States by improving
accountability and transparency in the financial system.\2\ The recent
financial crisis demonstrated the need for enhanced regulation of the
over-the-counter (``OTC'') derivatives markets, which have experienced
dramatic growth in recent years \3\ and are capable of affecting
significant sectors of the U.S. economy.\4\ Title VII of the Dodd-Frank
Act (``Title VII'') establishes a regulatory regime applicable to the
OTC derivatives markets by providing the Commission and the Commodity
Futures Trading Commission (``CFTC'') with the tools to oversee these
heretofore largely unregulated markets. The Dodd-Frank Act provides
that the CFTC will regulate ``swaps,'' the Commission will regulate
``security-based swaps,'' and the CFTC and the Commission will jointly
regulate ``mixed swaps.'' \5\
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\1\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
\2\ Id. at preamble.
\3\ From their beginnings in the early 1980s, the notional value
of these markets has grown to almost $600 trillion globally. See
Monetary and Econ. Dep't, Bank for Int'l Settlements, Triennial and
Semiannual Surveys--Positions in Global Over-the-Counter (OTC)
Derivatives Markets at End-June 2010 (Nov. 2010), available at
http://www.bis.org/publ/otc_hy1011.pdf.
\4\ See 156 Cong. Rec. S5878 (daily ed. July 15, 2010)
(statement of Sen. Dodd).
\5\ Section 712(d) of the Dodd-Frank Act provides that the
Commission and the CFTC, in consultation with the Board of Governors
of the Federal Reserve System, shall further define the terms
``swap,'' ``security-based swap,'' ``swap dealer,'' ``security-based
swap dealer,'' ``major security-based swap participant,'' ``eligible
contract participant,'' and ``security-based swap agreement.'' These
terms are defined in sections 721 and 761 of the Dodd-Frank Act and
the Commission and the CFTC have proposed to further define these
terms in proposed joint rulemaking. See Further Definition of
``Swap,'' ``Security-Based Swap,'' and ``Security-Based Swap
Agreement''; Mixed Swaps; Security-Based Swap Agreement
Recordkeeping, 76 FR 29818 (May 23, 2011); Further Definition of
``Swap Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap
Participant,'' ``Major Security-Based Swap Participant'' and
``Eligible Contract Participant,'' 75 FR 80174 (Dec. 21, 2010)
(``Entity Definitions Release'').
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Title VII amends the Exchange Act \6\ to substantially expand the
regulation of the security-based swap (``SB swap'') markets,
establishing a new regulatory framework within which such markets can
continue to evolve in a more transparent, efficient, fair, accessible,
and competitive manner.\7\ The Dodd-Frank Act amendments to the
Exchange Act impose, among other requirements, the following: (1)
Registration and comprehensive oversight of SB swap dealers (``SBSDs'')
and major SB swap participants (``MSBSPs'' and, collectively with
SBSDs, ``SBS Entities''); \8\ (2) reporting of SB swaps to a registered
SB swap data repository (``SDR''), to the Commission, and to the
public; \9\ (3) clearing of SB swaps through a registered clearing
agency or through a clearing agency that is exempt from registration
\10\ if such SB swaps are of a type that the Commission determines is
required to be cleared, unless an exemption or exception from such
mandatory clearing applies; \11\ and (4) if an SB swap is subject to
the clearing requirement,\12\ execution of the SB swap transaction on
an exchange, on an SB swap execution facility (``SB SEF'') registered
under section 3D of the Exchange Act,\13\ or on an SB SEF that has been
exempted from registration by the Commission under section 3D(e) of the
Exchange Act,\14\ unless no SB SEF or exchange makes such SB swap
available for trading.\15\ Title VII also amends the Exchange Act and
the Securities Act of 1933 \16\ (``Securities Act'') to include
``security-based swaps'' in the definition of ``security'' for purposes
of those statutes.\17\ As a result, ``security-based swaps'' will be
subject to the provisions of the Securities Act and the Exchange Act
and the rules thereunder applicable to ``securities.'' \18\ The
Commission has proposed exemptions \19\ under the Securities Act, the
Exchange Act, and the Trust Indenture Act of 1939 \20\ (``Trust
Indenture Act'') for SB swaps issued by certain clearing agencies
satisfying certain conditions.\21\ In addition, the Commission will
take other actions to address certain SB swaps, such as providing
guidance regarding--and where appropriate, temporary relief from--the
various pre-Dodd Frank Act provisions that would otherwise apply to SB
swaps on July 16, 2011, as well as extending existing temporary rules
under the Securities Act, the Exchange
[[Page 36289]]
Act, and the Trust Indenture Act for certain SB swaps.\22\
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\6\ 15 U.S.C. 78a et seq.
\7\ See generally subtitle B of Title VII. Citations to
provisions of the Exchange Act in this Order refer to the numbering
of those provisions after the amendments made by the Dodd-Frank Act,
except as otherwise provided.
\8\ As required by the Dodd-Frank Act, the Commission will
propose rules regarding the registration of SBS Entities and a
process for revocation of such registration. See section 15F of the
Exchange Act, 15 U.S.C. 78o-10.
\9\ See section 3(a)(75) of the Exchange Act, 15 U.S.C.
78c(a)(75) (defining the term ``security-based swap data
repository''). The registration of an SDR and the reporting of SB
swaps are the subject of separate Commission rulemakings. See
Security-Based Swap Data Repository Registration, Duties, and Core
Principles, 75 FR 77305 (Dec. 10, 2010), corrected at 75 FR 79320
(Dec. 20, 2010) and 76 FR 2287 (Jan. 13, 2011); Regulation SBSR--
Reporting and Dissemination of Security-Based Swap Information, 75
FR 75207 (Dec. 2, 2010).
\10\ See Clearing Agency Standards for Operation and Governance,
76 FR 14472 (Mar. 16, 2011). The Commission has proposed rules
regarding registration of clearing agencies and standards for the
operation and governance of clearing agencies, including rules that
would exempt certain SBSDs and SB SEFs from the definition of a
clearing agency.
\11\ See section 3C(a)(1) of the Exchange Act, 15 U.S.C. 78c-
3(a)(1). The Commission has proposed rules regarding the manner in
which clearing agencies provide information to the Commission about
SB swaps that the clearing agency plans to accept for clearing and
that would, in turn, be used by the Commission in determining
whether such SB swaps are required to be cleared. See Process for
Submissions for Review of Security-Based Swaps for Mandatory
Clearing and Notice Filing Requirements for Clearing Agencies;
Technical Amendments to Rule 19b-4 and Form 19b-4 Applicable to All
Self-Regulatory Organizations, 75 FR 82489 (Dec. 30, 2010).
\12\ See section 3C(g) of the Exchange Act, 15 U.S.C. 78c-3(g)
(providing an exception to the clearing requirement for certain
persons).
\13\ 15 U.S.C. 78c-4.
\14\ 15 U.S.C. 78c-4(e).
\15\ See section 3C(g) of the Exchange Act, 15 U.S.C. 78c-3(g).
See section 3C(h) of the Exchange Act, 15 U.S.C. 78c-3(h). See also
section 3(a)(77) of the Exchange Act, 15 U.S.C. 78c(77) (defining
the term ``security-based swap execution facility''). The Commission
has proposed an interpretation of the definition of ``security-based
swap execution facility'' and has proposed rules to implement
registration requirements, duties, and core principles for SB SEFs.
See Registration and Regulation of Security-Based Swap Execution
Facilities, 76 FR 10946 (Feb. 28, 2011).
\16\ 15 U.S.C. 77a et seq.
\17\ See sections 761(a)(2) and 768(a)(1) of the Dodd-Frank Act
(amending sections 3(a)(10) of the Exchange Act, 15 U.S.C.
78c(a)(10), and 2(a)(1) of the Securities Act, 15 U.S.C. 77b(a)(1),
respectively).
\18\ The Commission has considered similar issues raised by the
treatment of credit default swaps as securities in connection with
taking action in the past to facilitate clearing of certain credit
default swaps (``CDS'') by clearing agencies functioning as central
counterparties (``CCPs''). See infra notes 222 and 223.
\19\ See Exemptions for Security-Based Swaps Issued by Certain
Clearing Agencies, Securities Act Release No. 9222, Exchange Act
Release No. 64639, Trust Indenture Act Release No. 2474 (June 9,
2011) (``Proposed Cleared SB Swap Exemptions'').
\20\ 15 U.S.C. 77aaa et seq.
\21\ See discussion infra note 223.
\22\ See SEC Announces Steps to Address One-Year Effective Date
of Title VII of Dodd-Frank Act, available at http://www.sec.gov/news/press/2011/2011-125.htm (June 10, 2011).
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The provisions of Title VII generally are effective on July 16,
2011 (360 days after enactment of the Dodd-Frank Act, referred to
herein as the ``Effective Date''), unless a provision requires a
rulemaking. Specifically, if a Title VII provision requires a
rulemaking, such provision will not necessarily go into effect on the
Effective Date, but instead will go into effect ``not less than'' 60
days after publication of the related final rule or on July16, 2011,
whichever is later.\23\ A substantial number of Title VII provisions
require a rulemaking and thus will not go into effect on the Effective
Date. A number of Title VII provisions also expressly (or implicitly)
apply only to ``registered'' persons. Until the related registration
processes for such persons have been established by final Commission
rules, and such persons have become registered pursuant to such rules,
they will not be required to comply with these Title VII
provisions.\24\ Other provisions of Title VII impose requirements that
require compliance by market participants as a result of, or in
response to, Commission action other than rulemaking and thus do not
impose a compliance obligation upon market participants in the absence
of such Commission action.
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\23\ See section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note.
\24\ See, e.g., sections 15F(e)(1) of the Exchange Act, 15
U.S.C. 78o-10(e)(1) (capital and margin requirements); 15F(f)(1)
(reporting and recordkeeping); 15F(h)(1) (business conduct
standards).
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In addition, Title VII provides the Commission with flexibility to
establish effective dates beyond the minimum 60 days specified therein
for Title VII provisions that require a rulemaking.\25\ Furthermore, as
with other rulemakings under the Exchange Act, the Commission may set
compliance dates (which may be later than the effective dates) for
rulemakings under the Title VII amendments to the Exchange Act.
Together, this provides the Commission with the ability to sequence the
implementation of the various Title VII requirements in a way that
effectuates the policy goals of Title VII while minimizing unnecessary
disruption or costs.
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\25\ See id. (specifying that the effective date for a provision
requiring a rulemaking is ``not less than 60 days after publication
of the final rule or regulation implementing such provision'').
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Title VII also includes certain provisions that authorize or direct
the Commission to take specified action that, once undertaken, may
impose compliance obligations upon market participants.\26\ These
provisions will become effective on the Effective Date, but, by their
plain language, pertain to Commission action. Accordingly, these
provisions do not require compliance by market participants on the
Effective Date unless the relevant Commission action already has been
undertaken. The Commission does not expect to complete all of the
rulemaking it is directed to carry out pursuant to these provisions
prior to the Effective Date.
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\26\ See, e.g., section 3D(f) of the Exchange Act, 15 U.S.C.
78c-4(f) (requiring the Commission to prescribe rules governing the
regulation of SB SEFs). Certain of these provisions relate to the
CFTC or another government agency in addition to, or instead of, the
Commission.
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In furtherance of the Dodd-Frank Act's stated objective of
promoting financial stability in the U.S. financial system, the
Commission intends to move forward expeditiously with the
implementation of the new SB swap requirements in an efficient manner,
while minimizing unnecessary disruption and costs to the markets. The
Commission recognizes that many market participants will find
compliance with Title VII to be a substantial undertaking. SB swap
markets already exist, are global in scope, and have generally grown in
the absence of regulation in the United States and elsewhere. In
addition, the SB swap markets are interconnected with other financial
markets, including the traditional securities markets. In order to
comply with Title VII provisions and related rules, the Commission
recognizes that market participants will need additional time to
acquire and configure necessary systems or to modify existing practices
and systems, engage and train necessary staff, and develop and
implement necessary policies and procedures.\27\ Furthermore, some of
these changes cannot be finalized until certain rules are effective.
Accordingly, it is necessary or appropriate to defer some of these
tasks until certain rules are effective, as more fully described below.
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\27\ The Commission expects that it will not, by July 16, 2011,
have completed implementing Title VII. As a result, the Commission
believes it would not be reasonable to require market participants
to put systems in place or hire personnel based on a regulatory
scheme that is not fully in place. To require otherwise, depending
on the content of the final rules, might require these entities to
incur costs to change their systems again in a relatively short
period of time.
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In order to effectuate the purposes of Title VII, and in response
to comments received from market participants,\28\ the Commission is
providing guidance as to the provisions of the Exchange Act added by
Title VII with which industry compliance will be required as of the
Effective Date.\29\
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\28\ The Commission has received comments from a wide range of
commenters inquiring as to the effective dates and related
compliance dates of certain provisions and requesting that the
Commission propose a compliance schedule for the statutory
provisions of subtitle B of Title VII and the rules being
promulgated thereunder. See, e.g., letter from American Bankers
Association, Financial Services Roundtable, Futures Industry
Association, Institute of International Bankers, International Swaps
and Derivatives Association, Investment Company Institute,
Securities Industry and Financial Markets Association, U.S. Chamber
of Commerce (June 10, 2011) (``Trade Association Letter''); letter
from Stephen Merkel, Chairman, Wholesale Markets Brokers'
Association Americas (June 3, 2010) (``WMBA Letter''); letter from
Richard M. Whiting, Executive Director and General Counsel,
Financial Services Roundtable (May 12, 2011); letter from Andrew
Downes, Managing Director, and James B. Fuqua, Managing Director,
UBS Securities LLC (Feb. 7, 2011); letter from Craig S. Donohue, CME
Group Inc. (Jan. 18, 2011); letter from R. Glenn Hubbard, Co-Chair,
John L. Thornton, Co-Chair, and Hal S. Scott, Director, the
Committee on Capital Markets Regulation (Jan. 18, 2011) (``Committee
on Capital Markets Regulation Letter''); letter from Larry E.
Thompson, General Counsel, the Depository Trust & Clearing
Corporation (Jan 18, 2011) (``DTCC Letter''); letter from Mr. James
Hill, Managing Director, Morgan Stanley (Nov. 1, 2010) (``Morgan
Stanley Letter'').
In addition, many letters from market participants have
advocated for a phased-in approach to compliance with the
requirements of Title VII. See, e.g., WMBA Letter (suggesting a
``progression'' of finalization of specific Title VII rules);
Committee on Capital Markets Regulation Letter (stating that ``the
reporting and recordkeeping requirements should be implemented
gradually over time''); letter from Financial Services Forum,
Futures Industry Association, International Swaps and Derivatives
Association, and Securities Industry and Financial Markets
Association (May 4, 2011) (stating that ``[t]he Commissions should
phase in requirements based on the state of readiness of each
particular asset class''); letter from G14 Member dealers and others
(Mar. 31, 2011) (suggesting a ``phased-in implementation
schedule''); letter from Richard H. Baker, President & Chief
Executive Officer, Managed Funds Association (Mar. 24, 2011)
(recommending ``milestones for clearing access and voluntary
clearing with a phase-in period before clearing becomes
mandatory''); DTCC Letter (recommending a ``phased-in'' approach to
implementation of reporting requirements under Regulation SBSR);
Morgan Stanley Letter (urging the Commission and the CFTC ``to phase
in the clearing, execution and other requirements product-by-product
over time'').
Some of the commenters cited above addressed issues regarding
effective dates, compliance, and implementation that will be
addressed by other action to be taken the Commission. See supra note
22 and accompanying text.
\29\ While this release provides guidance with respect to the
provisions of the Exchange Act added by Title VII, as indicated
above, the Commission will take other actions to address SB swaps
under various provisions of the Federal securities laws. See supra
note 22 and accompanying text. In addition, after proposing all of
the key rules under Title VII, the Commission intends to consider
publishing a detailed implementation plan in order to enable the
Commission to move forward expeditiously with the roll-out of the
new SB swap requirements in an efficient manner, while minimizing
unnecessary disruption and costs to the markets. Id.
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In addition, and for the reasons discussed in this Order, the
Commission
[[Page 36290]]
is granting temporary exemptive and other relief that is necessary or
appropriate in the public interest, and consistent with the protection
of investors, from compliance with certain of those provisions of the
Exchange Act with which compliance would otherwise be required as of
the Effective Date. Generally, section 36 of the Exchange Act
authorizes the Commission to conditionally or unconditionally exempt,
by rule, regulation, or order, any person, security, or transaction (or
any class or classes of persons, securities, or transactions) from any
provision or provisions of the Exchange Act or any rule or regulation
thereunder, to the extent such exemption is necessary or appropriate in
the public interest, and is consistent with the protection of
investors.\30\ This exemptive authority is not available for certain
specified provisions of the Exchange Act that relate to SB swaps.\31\
Where such exemptive authority is not provided, the Commission is using
other available authority to provide appropriate temporary relief.
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\30\ 15 U.S.C. 78mm.
\31\ See section 36(c) of the Exchange Act, 15 U.S.C. 78mm(c)
(limiting the Commission's exemptive authority with respect to
certain provisions of the Exchange Act added by Title VII, such as
sections 13A, 15F, and 17A(g) through (l) of the Exchange Act, 15
U.S.C. 78m-1, 78o-10, and 78q-1(g) through (l)). The Commission
notes that the Securities Act provides for exemptive authority to be
exercised through rulemaking and, as a result, this Order does not
provide for any exemptive action with respect to the Securities Act.
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II. Discussion
A. Clearing for Security-Based Swaps
Section 3C of the Exchange Act, added by section 763(a) of the
Dodd-Frank Act, generally provides that, if an SB swap is required to
be cleared, it is unlawful for any person to engage in such SB swap
unless that person submits such SB swap for clearing to a clearing
agency that is registered under the Exchange Act or to a clearing
agency that is exempt from registration under the Exchange Act.\32\
Table A below lists each provision of section 3C of the Exchange Act
and identifies those with which compliance will be required on the
Effective Date and those with which compliance will be triggered by
registration of a person as a clearing agency, adoption of final rules,
or other action by the Commission.\33\ For the provisions with which
compliance will be required on the Effective Date, Table A notes
whether temporary relief from compliance is granted. The rationale and
duration for such relief is explained in the text following the table.
The table also includes provisions that authorize or direct the
Commission to take specified action that, once undertaken, may impose
compliance obligations upon market participants.\34\ Unless otherwise
noted in the table below, these provisions do not require compliance by
market participants on the Effective Date.
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\32\ 15 U.S.C. 78c-3.
\33\ Id.
\34\ See supra note 26 and accompanying text.
Table A--Clearing for Security-Based Swaps--Compliance Dates
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Compliance date
----------------------------------------
Upon registration, Authorizes/directs
Exchange act section \35\ Upon effective publication of commission action Relief granted
date (July 16, final rules, or \36\
2011) other commission
action \37\
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3C(a)(1): In general-- .................. [check] .................. N/A. \38\
standard for clearing.
3C(a)(2): In general--open .................. [check] .................. N/A. \39\
access.
3C(b)(1): Commission review-- .................. .................. [check] N/A.
Commission-initiated review.
3C(b)(2)(A) and (B): .................. [check] .................. N/A. \40\
Commission review--swap
submission.
3C(b)(2)(C): Commission .................. .................. [check] N/A.
review--swap submission.
3C(b)(3): Commission review-- .................. .................. [check] N/A.
deadline.
3C(b)(4): Commission review-- .................. .................. [check] N/A.
determination.
3C(b)(5): Commission review-- .................. .................. [check] N/A.
rules.
3C(c): Stay of clearing .................. .................. [check] N/A.
requirement.
3C(d): Prevention of evasion. .................. .................. [check] N/A.
3C(e)(1): Reporting .................. .................. [check] Yes. \41\
transition rules--pre-
enactment SB swaps.
3C(e)(2): Reporting .................. .................. [check] N/A. \42\
transition rules--post-
enactment SB swaps.
3C(f)(1): Clearing transition .................. [check] .................. N/A. \43\
rules.
3C(f)(2): Clearing transition .................. [check] .................. N/A. \44\
rules.
3C(g)(1)-(2), (4): .................. [check] .................. N/A. \45\
Exceptions--in general;
option to clear; treatment
of affiliates.
3C(g)(3)(A): Exceptions -- .................. [check] .................. N/A. \46\
financial entity definition--
in general.
3C(g)(3)(B): Exceptions-- .................. .................. [check] N/A.
financial entity definition--
exclusion.
3C(g)(5)(A): Exceptions-- .................. [check] .................. N/A.
election of counterparty--SB
swaps required to be cleared.
3C(g)(5)(B): Exceptions-- [check] .................. .................. Yes.
election of counterparty--SB
swaps not required to be
cleared.
3C(g)(6): Exceptions--abuse .................. .................. [check] N/A.
of exception.
3C(h): Trade execution....... .................. [check] .................. N/A.
3C(i): Board approval........ .................. [check] .................. N/A. \47\
3C(j)(1)--(2): Designation of .................. [check] .................. Yes. \48\
chief compliance officer--in
general; duties.
3C(j)(3): Designation of .................. [check] .................. N/A.
chief compliance officer--
annual reports.
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As indicated in Table A, the Commission is providing temporary
exemptive relief from compliance with section 3C(e)(1) of the Exchange
Act \49\
[[Page 36291]]
for market participants with reporting obligations under section 13A of
the Exchange Act.\50\
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\35\ References to section 3C of the Exchange Act in this table
are to 15 U.S.C. 78c-3.
\36\ These provisions do not require compliance by market
participants on the Effective Date, unless the relevant Commission
action already has been undertaken. See supra note 26 and
accompanying text.
\37\ A number of Title VII provisions expressly (or implicitly)
apply only to ``registered'' persons. Until the related registration
processes for such persons have been established by final Commission
rules, and such persons have become registered pursuant to such
rules, they will not be required to comply with these Title VII
provisions. If a Title VII provision requires a rulemaking, such
provision will not necessarily go into effect on the Effective Date,
but instead will go into effect ``not less than'' 60 days after
publication of the related final rule or on July 16, 2011, whichever
is later. See section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note.
\38\ Section 3C(b)(5) of the Exchange Act, 15 U.S.C. 78c-
3(b)(5), requires the Commission to ``adopt rules for a clearing
agency's submission for review * * * of a security-based swap, or a
group, category, type, or class of [SB swaps], that it seeks to
accept for clearing.''
\39\ Section 3C(a)(2) of the Exchange Act, 15 U.S.C. 78c-
3(a)(2), is applicable to ``rules of a clearing agency described in
[section 3C(a)(1) of the Exchange Act, 15 U.S.C. 78c-3(a)(1)].'' The
clearing agencies described in section 3C(a)(1) of the Exchange Act,
15 U.S.C. 78c-3(a)(1), are required to be registered, or exempt from
registration, and clearing SB swaps subject to the clearing
requirement. As a result, the requirements of section 3C(a)(2) of
the Exchange Act, 15 U.S.C. 78c-3, will not be triggered until a
clearing agency is registered or exempt from registration and also
is clearing SB swaps that are subject to the clearing requirement.
Three entities will be deemed registered on the Effective Date. See
discussion infra part 0. However, no SB swaps will be subject to the
clearing requirement on the Effective Date.
\40\ Section 3C(b)(2)(B) of the Exchange Act, 15 U.S.C. 78c-
3(b)(2)(B), states in part that SB swaps ``listed for clearing by a
clearing agency as of the date of enactment of [section 3C(b) of the
Exchange Act, 15 U.S.C. 78c-3(b)], shall be considered submitted to
the Commission.'' However, pursuant to section 3C(b)(3) of the
Exchange Act, 15 U.S.C. 78c-3(b)(3), a clearing agency may agree to
extend the time for action required under the section. The relevant
clearing agencies have agreed to an extension of the deadline for a
determination by the Commission ``until 90 days after the Commission
has published final rules governing the process by which SB swaps
shall be submitted to the Commission for a clearing determination.''
Until the rulemaking is completed, therefore, no SB swaps will be
considered submitted. See letter from Lisa Dunsky, Chicago
Mercantile Exchange Inc., to Robert Cook, Director, Division of
Trading and Markets, Commission (Aug. 26, 2010); letter from Thomas
Book, Eurex Clearing AG, to Robert Cook, Director, Division of
Trading and Markets, Commission (Aug. 19, 2010); and letter from
Trabue Bland, regarding ICE Trust U.S. LLC and ICE Clear Europe
Limited, to Robert Cook, Director, Division of Trading and Markets,
Commission (Sept. 2, 2010).
\41\ The Commission has proposed rules pursuant to this
provision. See infra note 172.
\42\ The Commission has proposed rules pursuant to this
provision. See Regulation SBSR--Reporting and Dissemination of
Security-Based Swap Information, supra note 9 (providing by rule a
deadline by which post-enactment SB swaps must be reported).
\43\ Because the exemption from the clearing requirement in this
provision requires the reporting of SB swaps pursuant to section
3C(e)(1) of the Exchange Act, 15 U.S.C. 78c-3(e)(1), market
participants cannot comply with this provision until final rules
have been adopted pursuant to such section 3C(e)(1).
\44\ Because the exemption from the clearing requirement in this
provision requires the reporting of SB swaps pursuant to section
3C(e)(2) of the Exchange Act, 15 U.S.C. 78c-3(e)(2), market
participants cannot comply with this provision until final rules
have been adopted pursuant to such section 3C(e)(2).
\45\ Because the mandatory clearing requirement is a predicate
requirement for the end-user clearing exception set forth in section
3C(g) of the Exchange Act, 15 U.S.C. 78c-3(g), end users will not
need to rely upon that exception until such time as an SB swap is
determined by the Commission to be required to be cleared.
Accordingly, the provisions of sections 3C(g)(1), (2) and (4) of the
Exchange Act, 15 U.S.C. 78c-3(g)(1), (2) and (4), will not be
triggered until that time.
\46\ Since the mandatory clearing requirement is a predicate
requirement for the end-user clearing exception set forth in section
3C(g) of the Exchange Act, 15 U.S.C. 78c-3(g), end users will not
need to rely upon that exception until such time as a SB swap is
determined by the Commission to be required to be cleared.
\47\ Since the mandatory clearing requirement is a predicate
requirement for any exemptions to it, this provision will not be
trigged until such time as a SB swap is determined by the Commission
to be required to be cleared.
\48\ Section 3C(j) of the Exchange Act, 15 U.S.C. 78c-3(j),
applies only to registered clearing agencies, including clearing
agencies that provide clearance and settlement services for
securities other than SB swaps. Accordingly, compliance with such
requirements will be required on the later of the Effective Date and
registration of the clearing agency. As noted above, three clearing
agencies will be deemed registered on the Effective Date, in
addition to clearing agencies already registered with the
Commission. See discussion infra part II.H.
\49\ 15 U.S.C. 78c-3(e)(1).
\50\ 15 U.S.C. 78m-1.
---------------------------------------------------------------------------
Section 3C(e)(1) of the Exchange Act requires the Commission to
adopt rules that provide that ``[s]ecurity-based swaps entered into
before the date of enactment of this section [(`pre-enactment SB
swaps')] shall be reported to a registered security-based swap data
repository or the Commission no later than 180 days after the effective
date of [section 3C of the Exchange Act].'' \51\ Section 3C of the
Exchange Act becomes effective on July 16, 2011, and 180 days after
that date is January 12, 2012.
---------------------------------------------------------------------------
\51\ 15 U.S.C. 78c-3(e)(1).
---------------------------------------------------------------------------
The Commission is exercising its authority under section 36 of the
Exchange Act \52\ to exempt any person from having to report any pre-
enactment SB swaps as set forth in the rules adopted by the Commission
pursuant to section 3C(e)(1) of the Exchange Act \53\ until six (6)
months after an SDR that is capable of accepting the asset class of the
pre-enactment SB swaps is registered by the Commission. The Commission
finds that such exemption is necessary or appropriate in the public
interest, and is consistent with the protection of investors, because,
even after an SDR is registered, market participants will need
additional time to establish connectivity and develop appropriate
policies and procedures to be able to deliver information to the
registered SDR. Therefore, under this exemption, no person will be
required to report a pre-enactment SB swap in an asset class until six
(6) months after an SDR that is capable of accepting SB swaps in that
asset class has registered with the Commission.\54\
---------------------------------------------------------------------------
\52\ 15 U.S.C. 78mm.
\53\ 15 U.S.C. 78c-3(e)(1).
\54\ Similarly, we proposed--in rule 910 of Regulation SBSR--
that no transaction reports for any SB swap executed on or after
July 21, 2010 would have to be submitted to a registered SDR until
six months after the date that an SDR registers with the Commission.
See Regulation SBSR--Reporting and Dissemination of Security-Based
Swap Information, supra note 9. As we stated in the Regulation SBSR
proposing release, before reporting to a registered SDR could
commence, persons with a duty to report would have to know the
policies and procedures of the SDR and have time to implement
necessary systems changes. Id.
---------------------------------------------------------------------------
The Commission also is exercising its authority pursuant to section
36 of the Exchange Act to grant a temporary exemption from section
3C(g)(5)(B) of the Exchange Act.\55\ Section 3C(g)(5)(B) of the
Exchange Act \56\ permits a counterparty to an SB swap that is not
subject to the mandatory clearing requirement to elect to clear its SB
swap with an SBS Entity. The Commission finds that it is necessary or
appropriate in the public interest, and consistent with the protection
of investors to grant a temporary exemption to SBS Entities from
section 3C(g)(5)(B) of the Exchange Act \57\ because the Commission
understands that there are currently no CCPs offering customer clearing
of SB swaps and additional action by the Commission will be necessary
to address segregation and other customer protection issues. Therefore,
under this exemption, section 3C(g)(5)(B) of the Exchange Act \58\ will
not apply until the earliest compliance date set forth in any of the
final rules regarding section 3C(b) of the Exchange Act.\59\
---------------------------------------------------------------------------
\55\ 15 U.S.C. 78c-3(g)(5)(B).
\56\ Id.
\57\ Id.
\58\ Id.
\59\ 15 U.S.C. 78c-3(b).
---------------------------------------------------------------------------
In addition, the Commission is exercising its authority pursuant to
section 36 of the Exchange Act to grant temporary exemptions from
sections 3C(j)(1) and (2) of the Exchange Act.\60\ Section 3C(j)(1) of
the Exchange Act \61\ requires that each registered clearing agency
designate an individual to serve as a chief compliance officer. The
chief compliance officer will be required to comply with the duties
specified in
[[Page 36292]]
section 3C(j)(2) of the Exchange Act,\62\ as well as, following
rulemaking, the reporting provisions of section 3C(j)(3) of the
Exchange Act.\63\ The Commission finds that it is necessary or
appropriate in the public interest, and consistent with the protection
of investors to grant temporary exemptions from sections 3C(j)(1) and
(2) of the Exchange Act \64\ because there is potential uncertainty
regarding the duties of a chief compliance officer as required by
section 3C(j)(2).\65\ Therefore, under this exemption, no person will
be required to comply with section 3C(j)(1) or (2) of the Exchange Act
\66\ until the earliest compliance date set forth in any of the final
rules regarding section 3C(j)(2) of the Exchange Act.\67\
---------------------------------------------------------------------------
\60\ 15 U.S.C. 78c-3(j)(1) and (2).
\61\ 15 U.S.C. 78c-3(j)(1).
\62\ 15 U.S.C. 78c-3(j)(2).
\63\ 15 U.S.C. 78c-3(j)(2).
\64\ 15 U.S.C. 78c-3(j)(1) and (2).
\65\ See Letter from DTCC (April 29, 2011) (stating that
``[w]hile DTCC fully supports the principle of a clearing agency
designating a CCO, DTCC believes that some of the duties of the CCO
specified in Proposed Rule 3Cj-1 require clarification in order to
avoid an overly broad reading of those duties. DTCC believes that
some of the duties of the CCO specified in the Proposed Rule go
beyond those duties traditionally understood to be part of the
compliance function.'').
\66\ 15 U.S.C. 78c-3(j)(1) or (2).
\67\ 15 U.S.C. 78c-3(j)(2).
---------------------------------------------------------------------------
With respect to the remaining provisions of section 3C of the
Exchange Act, unless and until the Commission makes a determination
that an SB swap is required to be cleared, section 3C of the Exchange
Act, by its terms, does not require any SB swap to be cleared through a
registered clearing agency or a clearing agency that is exempt from
registration.\68\ The Commission is required to adopt rules for
clearing agencies' submissions to the Commission for review of SB swaps
that clearing agencies seek to accept for clearing.\69\ Thus, no SB
swaps will be required to be submitted to the Commission for review
until the compliance date set forth in such rules.
---------------------------------------------------------------------------
\68\ See supra note 45.
\69\ See section 3C(b)(5) of the Exchange Act, 15 U.S.C. 78c-
3(b)(5). The Commission published proposed rules regarding the
submission process. See Process for Submissions for Review of
Security-Based Swaps for Mandatory Clearing and Notice Filing
Requirements for Clearing Agencies; Technical Amendments to Rule
19b-4 and Form 19b-4 Applicable to All Self-Regulatory
Organizations, supra note 11.
---------------------------------------------------------------------------
Request for Comment
Are there other provisions of section 3C of the Exchange
Act for which the Commission should grant temporary exemptive relief?
Please specify which provisions and provide a detailed explanation of
why granting such exemption would be necessary or appropriate in the
public interest, and consistent with the protection of investors.
B. Security-Based Swap Execution Facilities
Section 3D of the Exchange Act, added by section 763(c) of the
Dodd-Frank Act, contains the provisions regarding the registration of
SB SEFs and the core principles with which registered SB SEFs must
comply.\70\ Table B below lists each provision of section 3D of the
Exchange Act and identifies those with which compliance will be
required on the Effective Date and those with which compliance will be
triggered by registration of a person as a SB SEF, adoption of final
rules, or other action by the Commission.\71\ For the provisions with
which compliance will be required on the Effective Date, Table B notes
whether temporary relief from compliance is granted. The rationale and
duration for such relief is explained in the text following the table.
The table also includes provisions that authorize or direct the
Commission to take specified action that, once undertaken, may impose
compliance obligations upon market participants. Unless otherwise noted
in the table below, these provisions do not require compliance by
market participants on the Effective Date.
---------------------------------------------------------------------------
\70\ 15 U.S.C. 78c-4.
\71\ Id.
Table B--Security-Based Swap Execution Facilities--Compliance Dates
----------------------------------------------------------------------------------------------------------------
Compliance date
----------------------------------------
Upon registration, Authorizes/directs
Exchange act section \72\ Upon effective publication of commission action Relief granted
date (July 16, final rules, or \73\
2011) other commission
action \74\
----------------------------------------------------------------------------------------------------------------
3D(a)(1): Registration--in .................. [check] .................. Yes.\75\
general.
3D(a)(2): Registration --dual .................. [check] .................. N/A.
registration.
3D(b): Trading and trade .................. [check] .................. N/A.
processing.
3D(c): Identification of [check] .................. .................. Yes.
facility used to trade SB
swaps by national securities
exchanges.
3D(d): Core principles for SB .................. [check] .................. N/A.\76\
SEFs--compliance with core
principles--in general and
Commission rules and
information requests.
3D(e): Exemptions............ .................. .................. [check] N/A.
3D(f): Rules................. .................. .................. [check] N/A.
----------------------------------------------------------------------------------------------------------------
As indicated in Table B, the Commission finds, pursuant to section
36 of the Exchange Act,\77\ that it is necessary or appropriate in the
public interest, and is consistent with the protection of investors, to
grant
[[Page 36293]]
temporary exemptions from sections 3D(a)(1) and 3D(c) of the Exchange
Act.\78\ Section 3D(a)(1) of the Exchange Act states that no person may
operate a facility for the trading or processing of SB swaps unless the
facility is registered as a SB SEF or as a national securities exchange
under section 3D of the Exchange Act.\79\ The temporary exemption from
section 3D(a)(1) would allow an entity that trades SB swaps and is not
currently registered as a national securities exchange, or that cannot
yet register as a SB SEF because final rules for such registration have
not yet been adopted,\80\ to continue trading SB swaps during this
temporary period without registering as a national securities exchange
or SB SEF.\81\ The Commission finds that such action is necessary or
appropriate in the public interest, and consistent with the protection
of investors, to facilitate the operation of entities that trade SB
swaps so that these instruments can continue to be traded without the
need for entities that trade such instruments to register as national
securities exchanges before the Commission has put in place a
registration regime for SB SEFs, at which time the entities that
operate these facilities would be able to choose between registration
as a national securities exchange and a SB SEF.
---------------------------------------------------------------------------
\72\ References to section 3D of the Exchange Act in this table
are to 15 U.S.C. 78c-4.
\73\ These provisions do not require compliance by market
participants on the Effective Date, unless the relevant Commission
action already has been undertaken. See supra note 26 and
accompanying text.
\74\ A number of Title VII provisions expressly (or implicitly)
apply only to ``registered'' persons. Until the related registration
processes for such persons have been established by final Commission
rules, and such persons have become registered pursuant to such
rules, they will not be required to comply with these Title VII
provisions. If a Title VII provision requires a rulemaking, such
provision will not necessarily go into effect on the Effective Date,
but instead will go into effect ``not less than'' 60 days after
publication of the related final rule or on July 16, 2011, whichever
is later. See section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note.
\75\ Rulemaking is necessary to establish the form and manner of
registration.
\76\ Section 3D(d)(1) of the Exchange Act, 15 U.S.C. 78c-
4(d)(1), states in part that ``[t]o be registered, and to maintain
registration, as a security-based swap execution facility, the
security-based swap execution facility shall comply with * * * any
requirement that the Commission may impose by rule or regulation.''
Accordingly, compliance with such requirements will be required on
the later of the registration of the SB SEF and the compliance date
of any Commission rule establishing such requirements under section
3D of the Exchange Act, 15 U.S.C. 78c-4.
\77\ 15 U.S.C. 78mm.
\78\ 15 U.S.C. 78c-4(a)(1) and 78c-4(c).
\79\ 15 U.S.C. 78c-4(a)(1).
\80\ Such an entity could, for example, be an alternative
trading system or a trading platform that is currently not
registered with the Commission in any capacity. The Commission notes
that, if such an entity were doing business as an alternative
trading system, it would continue to be subject to the requirements
of Regulation ATS (17 CFR 242.300 et seq.) during this temporary
period.
\81\ The Commission intends to separately consider temporary
relief from the exchange registration requirements of Sections 5 and
6 of the Exchange Act, 15 U.S.C. 78f.
---------------------------------------------------------------------------
Section 3D(c) of the Exchange Act requires that a national
securities exchange (to the extent that it also operates an SB SEF and
uses the same electronic trade execution system for listing and
executing trades of SB swaps on or through the exchange and the
facility) identify whether electronic trading of such SB swaps is
taking place on or through the national securities exchange or the SB
SEF.\82\ The temporary exemption from section 3D(c) of the Exchange Act
\83\ would avoid legal uncertainty regarding whether a national
securities exchange is operating as a SB SEF until further guidance is
available.
---------------------------------------------------------------------------
\82\ 15 U.S.C. 78c-4(c).
\83\ Id.
---------------------------------------------------------------------------
The temporary exemptions from sections 3D(a)(1) and 3D(c) of the
Exchange Act \84\ will expire on the earliest compliance date set forth
in any of the final rules regarding registration of SB SEFs.
---------------------------------------------------------------------------
\84\ 15 U.S.C. 78c-4(a)(1) and (c).
---------------------------------------------------------------------------
Request for Comment
Are there other provisions of section 3D of the Exchange
Act for which the Commission should grant temporary exemptive relief?
Please provide a detailed explanation of why granting such an exemption
would be necessary or appropriate in the public interest, and
consistent with the protection of investors.
C. Segregation of Collateral in Security-Based Swaps
Section 3E of the Exchange Act, added by section 763(d) of the
Dodd-Frank Act, regulates the collection and handling of collateral
that counterparties to SB swaps deliver to secure their obligations
arising from such SB swaps and sets out certain rights of the
counterparties who deliver such collateral.\85\ Certain of these
provisions require rulemaking by the Commission and thus will not
require compliance on the Effective Date because the Commission will
not have adopted a segregation rule by that date. Table C below lists
each provision of section 3E of the Exchange Act and identifies those
provisions that will require compliance on the Effective Date and those
with which compliance will be triggered by the adoption of final rules
or other action by the Commission.\86\ For the provisions with which
compliance will be required on the Effective Date, Table C notes
whether temporary relief from compliance is granted. The rationale and
duration for such relief is explained in the text following the table.
---------------------------------------------------------------------------
\85\ 15 U.S.C. 78c-5.
\86\ Section 3E of the Exchange Act, 15 U.S.C. 78c-5, contains
no provisions that expressly apply only to registered SBSDs.
Table C--Segregation of Collateral in Security-Based Swaps-- Compliance Dates.
----------------------------------------------------------------------------------------------------------------
Compliance date
----------------------------------
Upon
registration, Authorizes/
Exchange act section \87\ Upon effective publication of directs Relief granted
date (July 16, final rules, or commission
2011) other action \88\
commission
action \89\
----------------------------------------------------------------------------------------------------------------
3E(a): Registration requirement..... [check] ............... ............... No.\90\
3E(b): Cleared SB swaps--segregation [check] ............... ............... No.\91\
required; commingling prohibited.
3E(c)(1): Exceptions--use of funds.. [check] ............... ............... N/A.
3E(c)(2): Exceptions--Commission [check] ............... ............... N/A.\92\
action.
3E(d): Permitted investments........ [check] ............... ............... N/A.
3E(d): Permitted investments-- ............... [check] ............... N/A.
specified as permitted investments
by the Commission.
3E(e): Prohibition.................. [check] ............... ............... No.\93\
3E(f): Segregation requirements for [check] ............... ............... Yes.
uncleared SB swaps.
3E(g): Bankruptcy................... [check] ............... ............... N/A.\94\
----------------------------------------------------------------------------------------------------------------
As indicated in Table C, the Commission is granting temporary
[[Page 36294]]
exemptions from compliance with section 3E(f) of the Exchange Act for
SBS Entities.\95\ Section 3E(f) of the Exchange Act requires SBS
Entities to segregate initial margin amounts delivered by their
counterparties in uncleared SB swap transactions if requested to do so
by such counterparties.\96\ Such segregation would require the
establishment of accounts in which to segregate collateral with
independent third-party custodians.\97\ The establishment of these
accounts and the adoption of policies and procedures setting forth the
proper collection and maintenance of collateral will require
expenditures of resources and time.\98\
---------------------------------------------------------------------------
\87\ References to section 3E of the Exchange Act in this table
are to 15 U.S.C. 78c-5.
\88\ These provisions do not require compliance by market
participants on the Effective Date, unless the relevant Commission
action already has been undertaken. See supra note 26 and
accompanying text.
\89\ A number of Title VII provisions expressly (or implicitly)
apply only to ``registered'' persons. Until the related registration
processes for such persons have been established by final Commission
rules, and such persons have become registered pursuant to such
rules, they will not be required to comply with these Title VII
provisions. If a Title VII provision requires a rulemaking, such
provision will not necessarily go into effect on the Effective Date,
but instead will go into effect ``not less than'' 60 days after
publication of the related final rule or on July16, 2011, whichever
is later. See section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note.
\90\ As explained below, the Commission will consider requests
for relief from compliance with this provision by CCPs on behalf of
participants.
\91\ As explained below, the Commission will consider requests
for relief from compliance with this provision by CCPs on behalf of
participants.
\92\ As explained below, the Commission will consider requests
for relief from CCPs on behalf of participants.
\93\ As explained below, the Commission will consider requests
for relief from CCPs on behalf of participants.
\94\ This section incorporates ``security-based swap'' into
certain provisions of the Bankruptcy Code, 11 U.S.C. 1 et seq.
\95\ 15 U.S.C. 78c-5(f).
\96\ Id.
\97\ 15 U.S.C. 78c-5(f)(1)(B) and (3).
\98\ Notwithstanding the exemption granted, market participants
in uncleared SB swaps may continue to voluntarily negotiate for and
receive similar protections to those provided in section 3E(f) of
the Exchange Act, 15 U.S.C. 78c-5(f), until compliance with such
section 3E(f) is required.
---------------------------------------------------------------------------
The Commission finds that temporary exemption from section 3E(f) of
the Exchange Act for SBS Entities is necessary or appropriate in the
public interest, and is consistent with the protection of investors,
because it would allow persons to register as an SBS Entity in
accordance with the applicable registration requirements, once
established, prior to expending resources to comply with the provisions
of section 3E(f) of the Exchange Act as discussed above.\99\ In
addition, the Commission believes the exemption will give SBS Entities
additional time to establish the necessary accounts and adopt the
policies and procedures required by section 3E(f) of the Exchange
Act.\100\ Accordingly, the Commission is providing a temporary
exemption pursuant to section 36 of the Exchange Act \101\ from section
3E(f) of the Exchange Act \102\ for SBS Entities. The temporary
exemption will expire on the date upon which the rules adopted by the
Commission to register SBSDs and MSBSPs become effective.
---------------------------------------------------------------------------
\99\ 15 U.S.C. 78c-5(f).
\100\ Id.
\101\ 15 U.S.C. 78mm.
\102\ 15 U.S.C. 78c-5(f)(1), (f)(3), and (f)(4).
---------------------------------------------------------------------------
Section 3E(a) of the Exchange Act prohibits a person not registered
as a broker, dealer, or SBSD from undertaking specified actions
pertaining to the collection of margin associated with clearing an SB
swap for an SB swap customer through a clearing agency.\103\ Section
3E(a) of the Exchange Act requires that a person register with the
Commission as a broker, dealer, or SBSD in order to comply with the
provision.\104\ Section 3E(b) of the Exchange Act obligates such
persons to segregate initial margin amounts delivered by their
counterparties in cleared SB swaps.\105\ Sections 3E(c), (d), and (e)
of the Exchange Act,\106\ respectively, contain exceptions to section
3E(b) of the Exchange Act \107\ permitting the commingling of funds for
convenience in certain circumstances, prescribe certain obligations of
the United States government in which margin collected may be invested,
and contain other prohibitions on the use of margin.
---------------------------------------------------------------------------
\103\ 15 U.S.C. 78c-5(a).
\104\ Id.
\105\ 15 U.S.C. 78c-5(b).
\106\ 15 U.S.C. 78c-5(c), (d), and (e).
\107\ 15 U.S.C. 78c-5(b).
---------------------------------------------------------------------------
The Commission is not granting exemptions from the requirements of
sections 3E(a), (b), (c) or (e) of the Exchange Act.\108\ Based on the
Commission's experience in granting, and representations made by
recipients of, previous exemptive orders for CCPs, the Commission
understands that there are currently no CCPs offering customer clearing
of SB swaps.\109\ However, for CCPs that are planning to offer customer
clearing of SB swaps before the compliance date for any of the final
rules regarding registration of SBS Entities, the Commission will
consider requests for relief from such CCPs on behalf of their
participants from sections 3E(a), (b), and (e) of the Exchange Act, as
appropriate, based on the applicable facts and circumstances.\110\
---------------------------------------------------------------------------
\108\ 15 U.S.C. 78c-5(a), (b), (c) or (e).
\109\ The Commission has granted temporary conditional
exemptions to facilitate CDS clearing in connection with requests on
behalf of ICE Clear Europe Limited; Eurex Clearing AG; Chicago
Mercantile Exchange Inc.; ICE Trust US LLC; and LIFFE Administration
and Management and LCH.Clearnet Ltd. See infra note 222 and
accompanying text.
\110\ 15 U.S.C. 78c-5(a), (b), and (e).
---------------------------------------------------------------------------
Request for Comment
Under the stock-broker bankruptcy provisions of the
Bankruptcy Code,\111\ the description of which persons have the status
as a customer of a broker-dealer with respect to their posted margin
includes persons whose margin is required to be segregated. Given that
reference to a segregation requirement, is any temporary exemption from
section 3E(f) of the Exchange Act appropriate?
---------------------------------------------------------------------------
\111\ See generally 11 U.S.C. 741 et seq.
---------------------------------------------------------------------------
Please explain the steps that must be taken for an SBSD to
segregate initial margin for uncleared SB swap transactions. How long
would it take to put in place such an arrangement with an independent
third-party custodian? Would any existing documentation between the
parties need to be amended?
Are there other provisions of section 3E of the Exchange
Act for which the Commission should consider granting a temporary
exemption? Please specify the provision or provisions for which
exemptions should be granted and provide a detailed explanation of why
granting such exemptions would be necessary or appropriate in the
public interest, and consistent with the protection of investors.
D. Security-Based Swap Antifraud Provisions
Section 9(j) of the Exchange Act,\112\ added by 763(g) of the Dodd-
Frank Act, includes a provision regarding the prevention of fraud,
manipulation, and deception in connection with SB swaps. As indicated
in Table D below, section 9(j) of the Exchange Act requires
rulemaking.\113\
---------------------------------------------------------------------------
\112\ 15 U.S.C. 78i(j).
\113\ Id. In the context of Section 774 of the Dodd-Frank Act,
which addresses provisions that require rulemaking, we believe
Section 9(j) requires rulemaking.
[[Page 36295]]
Table D--Security-Based Swap Antifraud Provisions--Compliance Dates
----------------------------------------------------------------------------------------------------------------
Compliance date
----------------------------------------
Upon registration, Authorizes/directs
Exchange act section \114\ Upon effective publication of commission action Relief granted
date (July 16, final rules, or \115\
2011) other commission
action \116\
----------------------------------------------------------------------------------------------------------------
9(j): Amends Exchange Act to .................. [check] .................. N/A.
make unlawful fraud,
manipulation and deception
in connection with SB swaps
directs the Commission to
engage in rulemaking to
define and prescribe means
reasonably designed to
prevent, such fraud,
manipulation and deception.
----------------------------------------------------------------------------------------------------------------
The Commission notes that, as of the Effective Date, SB swaps will
be securities.\117\ Thus, once the relevant provisions of the Dodd-
Frank Act take effect,\118\ persons effecting transactions in, or
engaged in acts, practices, and courses of business involving, SB swaps
will be subject to the Commission's rules and regulations that define
and prescribe acts and practices involving securities that are
manipulative, deceptive, fraudulent, or otherwise unlawful for purposes
of the general antifraud and anti-manipulation provisions of the
Federal securities laws, including sections 9(a) and 10(b) \119\ of the
Exchange Act, rule 10b-5 thereunder \120\ (and the prohibitions against
insider trading), section 15(c) of the Exchange Act,\121\ and section
17(a) of the Securities Act,\122\ among others.
---------------------------------------------------------------------------
\114\ References to section 9 of the Exchange Act in this table
are to 15 U.S.C. 78i.
\115\ These provisions do not require compliance by market
participants on the Effective Date, unless the relevant Commission
action already has been undertaken. See supra note 26 and
accompanying text.
\116\ A number of Title VII provisions expressly (or implicitly)
apply only to ``registered'' persons. Until the related registration
processes for such persons have been established by final Commission
rules, and such persons have become registered pursuant to such
rules, they will not be required to comply with these Title VII
provisions. If a Title VII provision requires a rulemaking, such
provision will not necessarily go into effect on the Effective Date,
but instead will go into effect ``not less than'' 60 days after
publication of the related final rule or on July 16, 2011, whichever
is later. See section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note.
\117\ See discussion infra. Section 761(a)(2) of the Dodd-Frank
Act amends the definition of ``security'' in section 3(a)(10) of the
Exchange Act, 15 U.S.C. 78c(a)(10), to include SB swaps. Section
768(a)(1) of the Dodd-Frank Act amends the Securities Act to include
SB swaps in the definition of ``security'' in section 2(a)(1)
thereof, 15 U.S.C. 77b(a)(1).
\118\ See section 774 of the Dodd-Frank Act.
\119\ 15 U.S.C. 78i(a) and 78j(b).
\120\ 17 CFR 240.10b-5.
\121\ 15 U.S.C. 78o(c).
\122\ 15 U.S.C. 77q(a).
---------------------------------------------------------------------------
E. Position Limits for Security-Based Swaps.
Section 10B of the Exchange Act, added by section 763(h) of the
Dodd-Frank Act, provides that the Commission ``shall, by rule or
regulation, as necessary or appropriate in the public interest or for
the protection of investors'' establish limits on the size of positions
in any SB swap that may be held by any person.\123\ As indicated in
Table E below, the provisions of section 10B authorize and direct the
Commission to undertake certain actions pertaining to position
limits.\124\ These provisions will become effective on the Effective
Date, but, by their plain language, pertain to Commission action.
Accordingly, these provisions do not require compliance by market
participants on the Effective Date.
---------------------------------------------------------------------------
\123\ 15 U.S.C. 78j-2.
\124\ Id.
Table E--Position Limits for Security-Based Swaps--Compliance Dates
----------------------------------------------------------------------------------------------------------------
Compliance date
----------------------------------------
Upon registration,
Exchange act section \125\ Upon effective publication of Authorizes/directs Relief
date (July 16, final rules, or commission action \126\ granted
2011) other commission
action
----------------------------------------------------------------------------------------------------------------
10B(a): Position limits............ .................. .................. [check]................... N/A.
10B(b): Exemptions................. .................. .................. [check]................... N/A.
10B(c): SRO rules.................. .................. .................. [check]................... N/A.
10B(d): Large trader reporting..... .................. .................. [check]................... N/A.
----------------------------------------------------------------------------------------------------------------
F. Reporting of Security-Based Swaps
---------------------------------------------------------------------------
\125\ References to section 10B of the Exchange Act in this
table are to 15 U.S.C. 78j-2.
\126\ These provisions do not require compliance by market
participants on the Effective Date, unless the relevant Commission
action already has been undertaken. See supra note 26 and
accompanying text.
---------------------------------------------------------------------------
i. Public Availability of Security-Based Swap Data
Section 13(m) of the Exchange Act, added by section 763(i) of the
Dodd-Frank Act, includes provisions regarding the reporting of SB swap
transactions and the public dissemination of such reported
information.\127\ As set forth in Table F-1 below, certain of the
statutory provisions of section 13(m) of the Exchange Act require
Commission rulemaking or other action or are only applicable once there
are registered SDRs to accept SB swap transaction data.\128\ The table
also includes provisions that authorize or direct the Commission to
take specified action that, once undertaken, may impose compliance
obligations upon market participants.\129\ Unless otherwise noted in
the table below, these provisions do not require compliance by market
participants on the Effective Date. The remaining provisions of section
13(m) of the Exchange Act will require compliance on the Effective Date
but do not impose any self-executing duties or
[[Page 36296]]
requirements upon market participants.\130\ Accordingly, the Commission
is not granting temporary relief from compliance with any provisions of
section 13(m) of the Exchange Act.
---------------------------------------------------------------------------
\127\ 15 U.S.C. 78m(m).
\128\ Id.
\129\ See supra note 26 and accompanying text.
\130\ Id.
Table F--Public Availability of Security-Based Swap Data--Compliance Dates
----------------------------------------------------------------------------------------------------------------
Compliance Date
----------------------------------
Upon
registration, Authorizes/
Exchange Act Section \131\ Upon effective publication of directs Relief granted
date (July 16, final rules, or commission
2011) other action \132\
commission
action \133\
----------------------------------------------------------------------------------------------------------------
13(m)(1)(A): In general--definition [check] ............... ............... N/A.\134\
of real-time public reporting.
13(m)(1)(B): In general--purpose.... [check] ............... ............... N/A.\135\
13(m)(1)(C): In general--general ............... ............... [check] N/A.
rule.
13(m)(1)(D): In general--registered ............... ............... [check] N/A.
entities and public reporting.
13(m)(1)(E): In general--rulemaking ............... ............... [check] N/A.
required.
13(m)(1)(F): In general--timeliness ............... [check] ............... N/A.
of reporting.
13(m)(1)(G): In general--reporting ............... [check] ............... N/A.
of swaps to registered SDRs.
13(m)(1)(H): In general-- ............... [check] ............... N/A.
registration of clearing agencies.
13(m)(2): Semiannual and annual ............... ............... [check] N/A.
public reporting of aggregate SB
swap data.
----------------------------------------------------------------------------------------------------------------
ii. Security-Based Swap Data Repositories.
Section 13(n) of the Exchange Act, added by section 763(i) of the
Dodd-Frank Act, provides for the registration, operation, and
governance of SDRs.\136\ Certain of the statutory provisions in section
13(n) of the Exchange Act either require a rulemaking or other
Commission action or apply only to SDRs once registered, rather than to
SDRs generally.\137\ Compliance with those provisions will not be
required on the Effective Date because the Commission will not have
adopted final rules (including rules regarding the manner and form of
registration) by that date. The table also includes provisions that
authorize or direct the Commission to take specified action that, once
undertaken, may impose compliance obligations upon market
participants.\138\ Unless otherwise noted in the table below, these
provisions do not require compliance by market participants on the
Effective Date. Table F-2 below lists each provision of section 13(n)
of the Exchange Act and identifies those provisions with which
compliance will be required on the Effective Date and those with which
compliance will be triggered by registration of a person as an SDR or
by adoption of final rules by the Commission.\139\ For the provisions
with which compliance will be required on the Effective Date, Table F-2
notes whether temporary relief from compliance is granted. The
rationale and duration for such relief is explained in the text
following the table.
---------------------------------------------------------------------------
\131\ References to section 13(m) of the Exchange Act in this
table are to 15 U.S.C. 78m(m).
\132\ These provisions do not require compliance by market
participants on the Effective Date, unless the relevant Commission
action already has been undertaken. See supra note 26 and
accompanying text.
\133\ A number of Title VII provisions expressly (or implicitly)
apply only to ``registered'' persons. Until the related registration
processes for such persons have been established by final Commission
rules, and such persons have become registered pursuant to such
rules, they will not be required to comply with these Title VII
provisions. If a Title VII provision requires a rulemaking, such
provision will not necessarily go into effect on the Effective Date,
but instead will go into effect ``not less than'' 60 days after
publication of the related final rule or on July 16, 2011, whichever
is later. See section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note.
\134\ This section defines ``real-time public reporting'' for
the purposes of section 13(m) of the Exchange Act, 15 U.S.C. 78m(m).
\135\ This section sets forth the purpose of section 13(m) of
the Exchange Act, 15 U.S.C. 78m(m).
\136\ 15 U.S.C. 78m(n).
\137\ Id.
\138\ See supra note 26 and accompanying text.
\139\ Id.
Table F-2--Security-Based Swap Data Repositories--Compliance Dates
----------------------------------------------------------------------------------------------------------------
Compliance date
----------------------------------
Upon
registration, Authorizes/
Exchange act section\140\ Upon effective publication of directs Relief granted
date (July 16, final rules, or commission
2011) other action\141\
commission
action\142\
----------------------------------------------------------------------------------------------------------------
13(n)(1): Registration requirement.. ............... [check] ............... N/A.\143\
13(n)(2): Inspection and examination ............... [check] ............... N/A.
13(n)(3)(A): Compliance with core ............... [check] ............... N/A.
principles.
13(n)(3)(B): Compliance with core ............... [check] ............... N/A.
principles--reasonable discretion
of SDR.
13(n)(4)(A): Standard setting--data ............... ............... [check] N/A.
identification.
13(n)(4)(B): Standard setting--data ............... ............... [check] N/A.
collection and maintenance.
13(n)(4)(C): Standard setting-- ............... ............... [check] N/A.
comparability.
13(n)(5)(A), (B),\144\(C), (D)(ii), ............... [check] ............... N/A.
and (E): Duties.
13(n)(5)(D)(i), (F), (G), and (H): [check] ............... ............... Yes.
Duties.
13(n)(6)(A)--(B): Designation of ............... [check] ............... N/A.\145\
chief compliance officer--in
general; duties.
13(n)(6)(C): Designation of chief ............... [check] ............... N/A.
compliance officer--annual reports.
[[Page 36297]]
13(n)(7)(A): Core principles [check] ............... ............... Yes.
applicable to SDRs--market access
to services and data.
13(n)(7)(B): Core principles [check] ............... ............... Yes.
applicable to SDRs--governance
arrangements.
13(n)(7)(C): Core principles [check] ............... ............... Yes.
applicable to SDRs--Conflicts of
interest.
13(n)(7)(D): Core principles ............... ............... [check] N/A.
applicable to SDRs--additional
duties developed by Commission.
13(n)(8): Required registration for ............... [check] ............... N/A.
SDRs.
13(n)(9): Rules..................... ............... ............... [check] N/A.
----------------------------------------------------------------------------------------------------------------
As indicated in Table F-2, the Commission finds, pursuant to
section 36 of the Exchange Act,\146\ that it is necessary or
appropriate in the public interest, and is consistent with the
protection of investors, to grant temporary exemptions from the
provisions of sections 13(n)(5)(D)(i), 13(n)(5)(F), 13(n)(5)(G),
13(n)(5)(H), and 13(n)(7)(A) through (C) of the Exchange Act\147\ that
would otherwise impose obligations on SDRs as of the Effective Date.
These temporary exemptions will allow SDRs additional time to develop
the policies, procedures, and systems necessary to comply with the
requirements of section 13(n) of the Exchange Act.\148\
---------------------------------------------------------------------------
\140\ References to section 13(n) of the Exchange Act in this
table are to 15 U.S.C. 78m(n).
\141\ These provisions do not require compliance by market
participants on the Effective Date, unless the relevant Commission
action already has been undertaken. See supra note 26 and
accompanying text.
\142\ A number of Title VII provisions expressly (or implicitly)
apply only to ``registered'' persons. Until the related registration
processes for such persons have been established by final Commission
rules, and such persons have become registered pursuant to such
rules, they will not be required to comply with these Title VII
provisions. If a Title VII provision requires a rulemaking, such
provision will not necessarily go into effect on the Effective Date,
but instead will go into effect ``not less than'' 60 days after
publication of the related final rule or on July 16, 2011, whichever
is later. See section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note.
\143\ In order to provide for orderly registration of SDRs, the
Commission will need to propose rules regarding the form and manner
of registration with the Commission as an SDR.
\144\ The data for which an SDR needs to confirm the accuracy
first needs to be prescribed by the Commission pursuant to section
13(n)(5)(A).
\145\ Section 13(n)(6) of the Exchange Act, 15 U.S.C. 78m(n)(6),
requires each SDR to designate a chief compliance officer who shall
perform certain specified duties and prepare annual reports.
Although the provision does not explicitly limit its application to
registered SDRs, within the context of Title VII and section 13(n)
of the Exchange Act, 15 U.S.C. 78m(n), which addresses registered
SDRs, the Commission believes that Congress intended these
requirements to apply only to SDRs that are registered or are
required to register with the Commission.
\146\ 15 U.S.C. 78mm.
\147\ 15 U.S.C. 78m(n)(5)(D)(i), (n)(5)(F), (n)(5)(G),
(n)(5)(H), and (n)(7)(A) through (C).
\148\ 15 U.S.C. 78m(n).
---------------------------------------------------------------------------
The Commission finds that granting a temporary exemption from
compliance with the requirements of section 13(n)(5)(D)(i) of the
Exchange Act \149\ is necessary or appropriate in the public interest,
and is consistent with the protection of investors. Section
13(n)(5)(D)(i) of the Exchange Act requires an SDR to provide direct
electronic access to the Commission or any designee of the
Commission.\150\ The Commission believes that this provision will
require investment of significant time and resources by an SDR to
implement the technology to be used to enable this direct electronic
access and to coordinate with the Commission to establish its direct
electronic access to data maintained by the SDR. The form and manner in
which an SDR will provide direct electronic access may vary, depending
in part on the amount of data stored at the SDR and how the SDR
maintains that data. In addition, this requirement would obligate SDRs
to make changes to existing systems and practices, or develop entirely
new systems and practices, all of which would require significant
investment of time and resources. The Commission believes it would be
inefficient for an SDR to expend time and resources to develop the
technological systems necessary to provide the direct electronic access
required by section 13(n)(5)(D)(i) of the Exchange Act prior to knowing
the capabilities the Commission rules will require these systems to
have.\151\
---------------------------------------------------------------------------
\149\ 15 U.S.C. 78m(n)(5)(D)(i).
\150\ Id.
\151\ Id.
---------------------------------------------------------------------------
Section 13(n)(5)(F) of the Exchange Act requires and SDR to
maintain the privacy of any and all SB swap transaction information
that the SDR receives from an SBSD, counterparty, or other registered
entity.\152\ The Commission finds that granting a temporary exemption
from compliance with section 13(n)(5)(F) of the Exchange Act \153\ is
necessary or appropriate in the public interest because it will provide
SDRs additional time to establish and implement robust policies and
procedures to protect the privacy of data reported to them.
---------------------------------------------------------------------------
\152\ 15 U.S.C. 78m(n)(5)(G).
\153\ Id.
---------------------------------------------------------------------------
Section 13(n)(5)(G) of the Exchange Act requires that SDRs, on a
confidential basis, and after notifying the Commission of the request,
make available all data obtained by the SDR, including individual
counterparty trade and position data, to certain enumerated
entities.\154\ Section 13(n)(5)(H) of the Exchange Act \155\ requires
that an SDR, before sharing information with any of the entities listed
in section 13(n)(5)(G) of the Exchange Act,\156\ (i) receive a written
agreement from such entity that the entity will abide by certain
confidentiality provisions relating to the information on SB swap
transactions that is provided and (ii) each such entity shall agree to
indemnify the SDR and the Commission for any expenses arising from
litigation relating to the information provided. The Commission finds
that granting a temporary exemption from compliance with the
notification and indemnification requirements of sections 13(n)(5)(G)
and 13(n)(5)(H) of the Exchange Act,\157\ is necessary or appropriate
in the public interest, and is consistent with the protection of
investors, because it would enable relevant authorities to continue
[[Page 36298]]
to have access to data maintained by SDRs necessary to fulfill their
respective mandates while the Commission considers various issues
related to these requirements.
---------------------------------------------------------------------------
\154\ Id.
\155\ 15 U.S.C. 78m(n)(5)(G).
\156\ 15 U.S.C. 78m(n)(5)(H).
\157\ 15 U.S.C. 78m(n)(5)(G) and 78m(n)(5)(H).
---------------------------------------------------------------------------
The Commission also finds that it is necessary or appropriate in
the public interest, and is consistent with the protection of
investors, to grant temporary exemptions from section 13(n)(7)(B) of
the Exchange Act's \158\ requirement that SDRs establish transparent
governance arrangements for certain enumerated reasons. Delaying
compliance with this requirement until the Commission's final rules
setting forth the full panoply of duties applicable to SDRs have been
adopted would avoid possible complications and unnecessary expenditures
of time and resources by an SDR. It also would avoid unnecessary
disruption of an SDR's governance structure, which could adversely
impact the SDR's operations and could result in unnecessary
expenditures of time and resources by the SDR. In addition, the
Commission finds that it is necessary or appropriate in the public
interest, and is consistent with the protection of investors, to grant
temporary relief from compliance with (i) section 13(n)(7)(A) of the
Exchange Act,\159\ which prohibits an SDR from adopting any rule or
taking any action that results in any unreasonable restraint of trade
or impose any material anticompetitive burden on the trading, clearing,
or reporting of transactions and (ii) section 13(n)(7)(C) of the
Exchange Act,\160\ which requires that SDRs establish rules to minimize
conflicts of interest and establish a process for resolving conflicts
of interest. The Commission believes that, until SDRs can register with
the Commission, they should be given additional time to establish and
implement the policies and procedures required by these provisions. In
addition, providing additional time through a temporary exemption for
SDRs to examine current business practices and any past issues they may
have dealt with will likely result in more robust policies and
procedures that will better protect market participants.
---------------------------------------------------------------------------
\158\ 15 U.S.C. 78m(n)(7)(B).
\159\ 15 U.S.C. 78m(n)(7)(A).
\160\ 15 U.S.C. 78m(n)(7)(C).
---------------------------------------------------------------------------
The temporary exemption granted by the Commission from compliance
with the requirements of sections 13(n)(5)(D)(i), 13(n)(5)(F),
13(n)(5)(G), 13(n)(5)(H), 13(n)(7)(A), 13(n)(7)(B), and 13(n)(7)(C) of
the Exchange Act \161\ will expire on the earlier of (1) the date the
Commission grants registration to the SDR and (2) the earliest
compliance date set forth in any of the final rules regarding the
registration of SDRs.
---------------------------------------------------------------------------
\161\ 15 U.S.C. 78m(n)(5)(D)(i), (n)(5)(G), (n)(5)(H)(ii),
(n)(7)(A), (n)(7)(B), and (n)(7)(C).
---------------------------------------------------------------------------
Request for Comment:
Are there other provisions in addition to those identified
above for which compliance is required as of the Effective Date but
exemptive relief is or is not appropriate? If so, please specify those
provisions and provide a detailed explanation of why granting such an
exemption is or is not necessary or appropriate in the public interest,
or consistent with the protection of investors.
iii. Reporting and Recordkeeping for Security-Based Swaps
Section 13A of the Exchange Act, added by section 766(a) of the
Dodd-Frank Act, generally sets forth reporting requirements for SB
swaps that are not cleared.\162\ As set forth in Table F-3 below,
certain of the statutory provisions of section 13A of the Exchange Act
require Commission rulemaking or other action or are only applicable if
a registered SDR will accept reports.\163\ The table also includes
provisions that authorize or direct the Commission to take specified
action that, once undertaken, may impose compliance obligations upon
market participants.\164\ Unless otherwise noted in the table below,
these provisions do not require compliance by market participants on
the Effective Date. The remaining provisions of section 13A of the
Exchange Act will become effective on the Effective Date but do not
impose any duties or requirements upon market participants.\165\
Accordingly, the Commission is not granting temporary relief from
compliance with any provisions of section 13A of the Exchange Act.\166\
---------------------------------------------------------------------------
\162\ 15 U.S.C. 78m-1.
\163\ Id.
\164\ See supra note 26 and accompanying text.
\165\ Id.
\166\ Id.
Table F-3--Reporting and Recordkeeping for Security-Based Swaps--Compliance Dates
----------------------------------------------------------------------------------------------------------------
Compliance Date
----------------------------------------
Upon registration, Authorizes/directs
Exchange act section \167\ Upon effective publication of commission action Relief granted
date (July 16, final rules, or \168\
2011) other commission
action \169\
----------------------------------------------------------------------------------------------------------------
13A(a)(1)(A): Required .................. [check] .................. N/A.\170\
reporting of SB swaps not
accepted by a clearing
agency or derivatives
clearing organization--in
general--reporting to SDRs.
13A(a)(1)(B): Required .................. [check] .................. N/A.\171\
reporting of SB swaps not
accepted by a clearing
agency or derivatives
clearing organization--in
general--reporting to the
Commission.
13A(a)(2)(A): Required .................. [check] .................. N/A.\172\
reporting of SB swaps not
accepted by a clearing
agency or derivatives
clearing organization--
transition rule pre-
enactment SB swaps.
13A(a)(2)(B): Required .................. .................. [check] N/A.
reporting of SB swaps not
accepted by a clearing
agency or derivatives
clearing organization--
rulemaking for transition
rule pre-enactment SB swaps.
13A(a)(2)(C): Required [check] .................. .................. N/A.\173\
reporting of SB swaps not
accepted by a clearing
agency or derivatives
clearing organization--
effective date.
13A(a)(3): Reporting .................. [check] .................. N/A.
obligations \174\.
13A(b): Duties of certain .................. [check] .................. N/A.\175\
individuals.
[[Page 36299]]
13A(c)(1): Requirements-- .................. [check] .................. N/A.
provision of reports on SB
swaps to the Commission.
13A(c)(2): Requirements-- .................. [check] .................. N/A.
recordkeeping requirement.
13A(d): Identical data....... .................. .................. [check] N/A.
----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
\167\ References to section 13A of the Exchange Act in this
table are to 15 U.S.C. 78m-1.
\168\ These provisions do not require compliance by market
participants on the Effective Date, unless the relevant Commission
action already has been undertaken. See supra note 26 and
accompanying text.
\169\ A number of Title VII provisions expressly (or implicitly)
apply only to ``registered'' persons. Until the related registration
processes for such persons have been established by final Commission
rules, and such persons have become registered pursuant to such
rules, they will not be required to comply with these Title VII
provisions. If a Title VII provision requires a rulemaking, such
provision will not necessarily go into effect on the Effective Date,
but instead will go into effect ``not less than'' 60 days after
publication of the related final rule or on July 16, 2011, whichever
is later. See section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note.
\170\ Section 13A(a)(1) of the Exchange Act, 15 U.S.C. 78m-
1(a)(1), states in part that ``[e]ach security-based swap that is
not accepted for clearing by any clearing agency or derivatives
clearing organization shall be reported to (A) a security-based swap
data repository described in section 13(n) [of the Exchange Act, 15
U.S.C. 78m(n)].'' Because the SDRs described in section 13(n) of the
Exchange Act, 15 U.S.C. 78m(n), are required by section 13(n)(1) of
the Exchange Act, 15 U.S.C. 78m(n)(1), to be registered, the
Commission believes this requirement is not triggered until an SDR
is registered.
\171\ Section 13A(a)(1)(B) of the Exchange Act, 15 U.S.C. 78m-
1(a)(1)(B), provides for an alternative method of reporting if there
is no SDR that will accept a report; however, the time frame for
that reporting requirement must be established by Commission rule.
\172\ Section 13A(a)(2) of the Exchange Act, 15 U.S.C. 78m-
1(a)(2), required the Commission to promulgate an interim final rule
regarding reporting of pre-enactment SB swaps and states in part
that each such pre-enactment SB swap, the terms of which have not
expired as of such date, ``shall be reported to a registered
security-based swap data repository or the Commission by a date that
is not later than (i) 30 days after issuance of the interim final
rule; or (ii) such other period as the Commission determines to be
appropriate.'' The effective date of the interim final rule was
October 20, 2010. However, pursuant to the interim final temporary
rule issued by the Commission on reporting of pre-enactment SB swap
data, specified counterparties to such pre-enactment SB swaps are
required to (1) report certain information to a registered SDR or
the Commission by the compliance date established in the reporting
rules required under sections 3C(e) and 13A(a)(1) of the Exchange
Act, 15 U.S.C. 78c-3(e) and 78m-1(a)(1), or within 60 days after a
registered SDR commences operations to receive and maintain data
concerning such SB swap, whichever occurs first, and (2) report to
the Commission any information relating to such pre-enactment SB
swaps upon request of the Commission. No SDR is registered yet to
accept SB swap data and the reporting rules under section 3C(e) have
not yet been adopted. In addition, the Commission stated, in an
interpretative note to the interim final rule, its belief that it is
necessary for a counterparty, that may be required to report
transactions under the interim final rule, to retain all information
relating to the terms of pre-enactment security-based swaps in order
for that counterparty to be able to comply with the reporting
requirements of the interim final rule. See Reporting of Security-
Based Swap Transaction Data, 75 FR 64643 (Oct. 20, 2010). The
reporting rules under sections 3C(e) and 13A(a)(1) of the Exchange
Act, 15 U.S.C. 78c-3(e) and 78m-1(a)(1), are included in a separate
release. See Regulation SBSR--Reporting and Dissemination of
Security-Based Swap Information, supra note 9.
\173\ This section provides that the effective date of section
13A of the Exchange Act, 15 U.S.C. 78m-1, is the date of enactment
of section 13A of the Exchange Act, 15 U.S.C. 78m-1. However,
compliance will not be required until applicable rules and
regulations regarding registered SDRs are in place.
\174\ See supra note 170.
\175\ This section defines the individuals and entities to which
the requirements of section 13A(c) of the Exchange Act, 15 U.S.C.
78m-1(c), apply.
---------------------------------------------------------------------------
Request for Comment
Are there provisions of section 13A of the Exchange Act
for which the Commission should grant temporary exemptive relief?
Please specify which provisions and provide a detailed explanation of
why granting such exemption would be necessary or appropriate in the
public interest, and consistent with the protection of investors.
G. Registration and Regulation of Security-Based Swap Dealers and Major
Security-Based Swap Participants
Section 15F of the Exchange Act, added by section 764(a) of the
Dodd-Frank Act, establishes requirements for registration and
comprehensive oversight of SBS Entities.\176\ Many of the provisions of
section 15F of the Exchange Act either require rulemaking or other
action by the Commission \177\ or apply only to SBS Entities once
registered, rather than to SBS Entities generally.\178\ Those
provisions that either require rulemaking or other action by the
Commission or apply only to registered SBS Entities will not require
compliance on the Effective Date because the Commission will not have
adopted final rules (including rules regarding the manner and form of
registration) or taken other required action by that date. Table G
below lists each provision of section 15F of the Exchange Act \179\ and
identifies those provisions with which compliance will be required on
the Effective Date and those with which compliance will be triggered by
registration of SBS Entities or by the adoption of final rules or other
action by the Commission. The table also includes provisions that
authorize or direct the Commission to take specified action that, once
undertaken, may impose compliance obligations upon market
participants.\180\ Unless otherwise noted in the table below, these
provisions do not require compliance by market participants on the
Effective Date. For the provisions with which compliance will be
required on the Effective Date, Table G notes whether the Commission is
providing temporary relief from compliance. The rationale and duration
for such relief is explained in the text following the table.
---------------------------------------------------------------------------
\176\ 15 U.S.C. 78o-10.
\177\ See, e.g., section 15F(b)(2) of the Exchange Act, 15
U.S.C. 78o-10(b)(2) (providing that the registration application of
SBS Entities ``shall be made in such form and manner as prescribed
by the Commission'').
\178\ See, e.g., section 15F(h)(1) of the Exchange Act, 15
U.S.C. 78o-10(h)(1) (providing that registered SBS Entities shall
conform to certain prescribed business conduct standards); section
15F(h)(6) of the Exchange Act, 15 U.S.C. 78o-10(h)(6) (directing the
Commission to prescribe rules to implement the business conduct
requirements of subsection (h) of such section 15F applicable to
registered SBS Entities).
\179\ 15 U.S.C. 78o-10.
\180\ See supra note 26 and accompanying text.
[[Page 36300]]
Table G--Registration and Regulation of Security-Based Swap Dealers and Major Security-Based Swap Participants--
Compliance Dates
----------------------------------------------------------------------------------------------------------------
Compliance date
----------------------------------------
Upon registration, Authorizes/directs/
Exchange act section \181\ Upon effective publication of limits commission Relief granted
date (July 16, final rules, or action \182\
2011) other commission
action \183\
----------------------------------------------------------------------------------------------------------------
15F(a): Registration of SBSDs .................. [check] .................. N/A.\184\
and MSBSPs.
15F(b)(1)-(3): Requirements-- .................. [check] .................. N/A.
in general; contents;
expiration.
15F(b)(4): Requirements-- .................. .................. [check] N/A.
rules.
15F(b)(5): Requirements-- .................. .................. [check] N/A.
transition.
15F(b)(6): Requirements-- [check] .................. .................. Yes
statutory disqualification.
15F(c): Dual registration-- .................. [check] .................. N/A.
SBS Entities.
15F(d): Rulemaking........... .................. .................. [check] N/A.
15F(e)(1): Capital and margin .................. [check] .................. N/A.\185\
requirements--in general.
15F(e)(2): Capital and margin .................. .................. [check] N/A.\186\
requirements--rules.
15F(e)(3)(A): Capital and .................. .................. [check] N/A.
margin requirements.
15F(e)(3)(B)(i): Capital and .................. .................. [check] \187\ N/A.
margin requirements--rule of
construction; in general.
15F(e)(3)(B)(ii): Capital and [check] .................. .................. N/A.\188\
margin requirements--rule of
construction; futures
commission merchants and
other dealers.
15F(e)(3)(C), (D): Capital .................. .................. [check] N/A.\189\
and margin requirements--
rule of construction; margin
requirements and;
comparability.
15F(f)(1): Reporting and .................. [check] .................. N/A.\190\
recordkeeping--in general.
15F(f)(2): Reporting and .................. .................. [check] N/A.
recordkeeping--rules.
15F(g)(1)-(4): Daily trading .................. [check] .................. N/A.\191\
records--in general;
information requirements;
counterparty records; audit
trail.
15F(g)(5): Daily trading .................. .................. [check] N/A.
records--rules.
15F(h)(1): Business conduct .................. [check] .................. N/A.\192\
standards.
15F(h)(2): Business conduct .................. [check] .................. N/A.\193\
standards--responsibilities
with respect to special
entities.
15F(h)(3): Business conduct .................. .................. [check] N/A.\194\
standards--business conduct
requirements.
15F(h)(4): Business conduct .................. [check] .................. N/A.\195\
standards--special
requirements for SBSDs
acting as advisors.
15F(h)(5)(A): Business .................. [check] .................. N/A.\196\
conduct standards--special
requirements for SBSDs as
counterparties to special
entities.
15F(h)(5)(B): Business .................. .................. [check] N/A.
conduct standards--
Commission authority.
15F(h)(6): Business conduct .................. .................. [check] N/A.
standards--rules.
15F(h)(7): Business conduct [check] .................. .................. N/A.\197\
standards--applicability.
15F(i)(1): Documentation .................. [check] .................. N/A.\198\
standards--in general.
15F(i)(2): Documentation .................. .................. [check] N/A.
standards--rules.
15F(j)(1)-(6): Duties-- .................. [check] .................. N/A.
monitoring of trading; risk
management procedures;
disclosure of general
information; ability to
obtain information;
conflicts of interest;
antitrust considerations.
15F(j)(7): Duties--rules..... .................. .................. [check] N/A.
15F(k)(1)-(2): Designation of .................. [check] .................. N/A.\199\
chief compliance officer--in
general; duties.
15F(k)(3): Designation of .................. [check] .................. N/A.
chief compliance officer--
annual reports.
15F(l): Enforcement and .................. .................. [check] \201\ N/A.
administrative proceeding
authority.\200\
----------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------
\181\ References to section 15F of the Exchange Act in this
table are to 15 U.S.C. 78o-10.
\182\ These provisions do not require compliance by market
participants on the Effective Date, unless the relevant Commission
action already has been undertaken. See supra note 26 and
accompanying text.
\183\ A number of Title VII provisions expressly (or implicitly)
apply only to ``registered'' persons. Until the related registration
processes for such persons have been established by final Commission
rules, and such persons have become registered pursuant to such
rules, they will not be required to comply with these Title VII
provisions. If a Title VII provision requires a rulemaking, such
provision will not necessarily go into effect on the Effective Date,
but instead will go into effect ``not less than'' 60 days after
publication of the related final rule or on July16, 2011, whichever
is later. See section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note.
\184\ Section 15F(b)(2)(A) of the Exchange Act, 15 U.S.C. 78o-
10(b)(2)(A), requires SBS Entities to register as such ``in such
form and manner as prescribed by the Commission * * * ''
\185\ Section 15F(e)(1) of the Exchange Act, 15 U.S.C. 78o-
10(e)(1), states in part that registered SBS Entities for which
there is not a prudential regulator ``shall meet such minimum
capital requirements and minimum initial and variation and margin
requirements as the Commission shall by rule or regulation prescribe
* * * '' Accordingly, compliance with such requirements will be
required on the later of the registration of a person as an SBS
Entity and the compliance date of any Commission rule establishing
these capital and margin requirements.
\186\ For SBS Entities for which there is a prudential
regulator, the prudential regulator shall consult with the
Commission and the CFTC in establishing capital and margin
requirements.
\187\ Section 15F(e)(3)(B)(i) of the Exchange Act, 15 U.S.C.
78o-10(e)(3)(B)(i), provides that nothing in section 15F of the
Exchange Act, 15 U.S.C. 78o-10, shall limit the authority of the
Commission or the CFTC to set financial responsibility rules for SBS
Entities over which they have jurisdiction, respectively.
\188\ Section 15F(e)(3)(B)(ii) of the Exchange Act, 15 U.S.C.
78o-10(e)(3)(B)(ii), provides that a futures commission merchant,
introducing broker, broker, or dealer shall maintain sufficient
capital to comply with the stricter of any applicable capital
requirements to which such futures commission merchant, introducing
broker, broker, or dealer is subject to under section 15(f) of the
Exchange Act, 15 U.S.C. 78o-10(f), or the Commodity Exchange Act.
\189\ Section 15F(e)(3)(C) of the Exchange Act, 15 U.S.C. 78o-
10(e)(3)(C), provides, inter alia, that prudential regulators, the
Commission, and the CFTC shall consult and ``to the maximum extent
practicable'' establish and maintain comparable minimum capital and
margin requirements.
\190\ Section 15F(f)(1) of the Exchange Act, 15 U.S.C. 78o-
10(f)(1), states in part that registered SBS Entities ``shall make
such reports as are required by the Commission, by rule or
regulation, regarding the transactions and positions and financial
condition of the registered security-based swap dealer or major
security-based swap participant'' and ``shall keep books and records
* * * in such form and manner and for such period as may be
prescribed by the Commission by rule or regulation * * * ''
Accordingly, compliance with such reporting and recordkeeping
requirements will be required on the later of the registration of a
person as an SBS Entity and the compliance date of any Commission
rule establishing these reporting and recordkeeping requirements.
\191\ Section 15F(g)(1) of the Exchange Act, 15 U.S.C. 78o-
10(g)(1), states in part that each registered SBS Entity shall
maintain daily trading records and recorded communications ``for
such period as may be required by the Commission by rule or
regulation.'' In addition, section 15F(g)(2) of the Exchange Act, 15
U.S.C. 78o-10(g)(2) provides that the daily trading records shall
include ``such information as the Commission shall require by rule
or regulation.'' Accordingly, compliance with such recordkeeping
requirements will be required on the later of the registration of a
person as an SBS Entity and the compliance date of the Commission
rule establishing these recordkeeping requirements.
\192\ Section 15F(h)(6) of the Exchange Act, 15 U.S.C. 78o-
10(h)(6), directs the Commission to ``prescribe rules under this
subsection [(h) of the Exchange Act, 15 U.S.C. 78o-10(h),] governing
business conduct standards.'' Accordingly, business conduct
standards pursuant to section 15F(h) of the Exchange Act, 15 U.S.C.
78o-10(h), will be established by rule and compliance will be
required on the compliance date of the Commission rule establishing
these business conduct standards. See also infra note 195.
\193\ Id.
\194\ Id.
\195\ Id. The Commission notes, however, that, as of the
Effective Date, SB swaps will be securities and will be subject to
the Commission's authority under sections 9(a) and 10(b) of the
Exchange Act, 15 U.S.C. 78i(a) and 78j(b), including rule 10b-5
thereunder, 17 CFR 240.10b-5, section 15(c) of the Exchange Act, 15
U.S.C. 78o(c), and section 17(a) of the Securities Act, 15 U.S.C.
77q(a), among others. See discussion supra note 117 and accompanying
text.
\196\ See supra note 192.
\197\ This section limits the applicability of section 15F(h) of
the Exchange Act, 15 U.S.C. 78o-10(h).
\198\ Section 15F(i) of the Exchange Act, 15 U.S.C. 78o-10(i),
states in part that each registered SBS Entity ``shall conform with
such standards as may be prescribed by the Commission, by rule or
regulation, that relate to timely and accurate confirmation,
processing, netting, documentation, and valuation of all security-
based swaps.'' Accordingly, compliance with such requirements will
be required on the later of the registration of a person as an SBS
Entity and the compliance date of the Commission rule establishing
these documentation standards.
\199\ Section 15F(k) of the Exchange Act, 15 U.S.C. 78o-10(k),
requires each SBS Entity to designate a chief compliance officer who
shall perform certain specified duties and prepare annual reports.
Although the provision does not explicitly limit its application to
a registered SBS Entity, within the context of Title VII and section
15F of the Exchange Act, 15 U.S.C. 78o-10, which regulates
registered SBS Entities, the Commission believes that Congress
intended these requirements to apply only to SBS Entities that are
registered or are required to register with the Commission.
\200\ As discussed above, provisions in this column that require
Commission action will be effective on the Effective Date. In
particular, if (after the Effective Date) the Commission has issued
an order pursuant to section 15F(l)(3) of the Exchange Act, 15
U.S.C. 78o-10(l)(3), then, section 15F(l)(4) of the Exchange Act, 15
U.S.C. 78o-10(l)(4), will be applicable and will require Commission
consent for persons subject to such an order to be associated with a
SBS Entity.
\201\ In addition to Commission authority, section 15F(l) of the
Exchange Act, 15 U.S.C. 78o-10(l), also provides enforcement
authority to prudential regulators for SBS Entities for which they
are the prudential regulator.
---------------------------------------------------------------------------
[[Page 36301]]
As indicated in Table G, the Commission is providing a temporary
exception for SBS Entities from compliance with section 15F(b)(6) of
the Exchange Act.\202\ Section 15F(b)(6) of the Exchange Act prohibits
an SBS Entity from permitting an associated person who is subject to a
statutory disqualification, as defined in section 3(a)(39) of the
Exchange Act,\203\ to effect or be involved in effecting SB swaps on
its behalf if the SBS Entity knew or should have known of the statutory
disqualification.\204\ Section 15F(b)(6) expressly authorizes the
Commission to establish exceptions to this provision by rule,
regulation, or order.\205\ This authority is similar to authority
provided to the Commission with respect to the ``traditional''
securities industry, i.e., the industry regulated under the Exchange
Act prior to the Dodd-Frank Act amendments. This existing Exchange Act
authority permits self-regulatory organizations (``SROs''), subject to
Commission review, to allow, among other things, a person subject to a
statutory disqualification to associate with a broker-dealer.\206\
---------------------------------------------------------------------------
\202\ 15 U.S.C. 78o-10(b)(6).
\203\ 15 U.S.C. 78c(a)(39).
\204\ 15 U.S.C. 78o-10(b)(6).
\205\ Id.
\206\ When such a person seeks admission to or continuance in
membership or association, the Commission and the SRO have the
opportunity to give special review to such person and to restrict or
prevent entry into, or continuance in, the business where
appropriate in the public interest and for the protection of
investors. See Senate Comm. on Banking, Housing, and Urban Affairs,
The Securities Act Amendments of 1989, S. Rep. No. 101-105, at 39
(1989); Provision for Notices by Self-Regulatory Organizations of
Stays of Such Actions; Appeals; and Admissions to Membership or
Association of Disqualified Persons, 42 FR 36409 (Jul. 14, 1977)
(adopting rule 19h-1 under the Exchange Act, 17 CFR 240.19h-1, and
providing rules for process of filing notices, content of notices,
and Commission determination).
---------------------------------------------------------------------------
Similarly, Commission rule 193 (Applications by Barred Individuals
for Consent to Associate) provides a process by which persons that are
not regulated by a SRO (e.g., an investment adviser, an investment
company, or a transfer agent) can seek to reenter the securities
industry despite previously being barred by the Commission.\207\
---------------------------------------------------------------------------
\207\ 17 CFR 201.193.
---------------------------------------------------------------------------
The Commission intends to separately consider issues relating to
how an associated person of an SBS Entity subject to a statutory
disqualification may be involved in the SB swap business of the SBS
Entity. The Commission believes that existing business relationships
and market activity may be unnecessarily disrupted if market
participants were required to comply with section 15F(b)(6) of the
Exchange Act \208\ before the Commission considered, through notice and
comment rulemaking, whether to adopt a procedure for potential
modifications of the effect of statutory disqualifications under Title
VII for SBS Entities and what any such procedure would require. The
Commission, therefore, by this Order and pursuant to the authority
granted in section 15F(b)(6) of the Exchange Act, is providing a
temporary and limited exception for SBS Entities from the application
of the prohibition in section 15F(b)(6) of the Exchange Act.\209\
Specifically, persons subject to a statutory disqualification (as
defined in section 3(a)(39) of the Exchange Act \210\) who are, as of
the Effective Date, currently associated with an SBS Entity and who
effect or are involved in effecting SB swaps on behalf of such SBS
Entity may continue to be associated with any SBS Entity until the date
upon which rules adopted by the Commission to register SBS Entities
become effective.
---------------------------------------------------------------------------
\208\ 15 U.S.C. 78o-10(b)(6).
\209\ Id.
\210\ 15 U.S.C. 78c(a)(39).
---------------------------------------------------------------------------
Request for Comment:
Are there certain persons subject to statutory
disqualification who should not be permitted to remain associated with
an SBS Entity during the time period of the exception, for example,
based upon the nature of the underlying conduct or sanction that
resulted in the disqualification?
Should there be any differentiation in relief from section
15F(b)(6) of the Exchange Act based upon the nature of the person,
e.g., a natural person or an entity? If so, how and why?
Are there persons who are not currently associated with an
SBS Entity but who should be able to associate with
[[Page 36302]]
such entities notwithstanding their statutory disqualification until
such time as a procedural rule defining the application of section
15F(b)(6) of the Exchange Act is in place?
H. Registration of Clearing Agencies for Security-Based Swaps
Section 17A of the Exchange Act, amended by section 763(b) of the
Dodd-Frank Act,\211\ requires registration of persons performing the
functions of a clearing agency with respect to SB swaps. Many of the
provisions of section 17A of the Exchange Act either require rulemaking
or other action by the Commission or apply only to clearing agencies
once registered. Those provisions that either require rulemaking or
other action by the Commission or apply only to registered clearing
agencies will not require compliance on the Effective Date. Table H
below lists each provision of section 17A of the Exchange Act \212\
that was added by the Dodd-Frank Act and identifies those provisions
with which compliance will be required on the Effective Date and those
with which compliance will be triggered by registration of clearing
agencies or by the adoption of final rules or other action by the
Commission. The table also includes provisions that authorize or direct
the Commission to take specified action that, once undertaken, may
impose compliance obligations upon market participants.\213\ Unless
otherwise noted in the table below, these provisions do not require
compliance by market participants on the Effective Date. For the
provisions with which compliance will be required on the Effective
Date, Table H notes whether temporary relief from compliance is
granted.
---------------------------------------------------------------------------
\211\ 15 U.S.C. 78q-1.
\212\ Id.
\213\ See supra note 26 and accompanying text.
Table H--Registration of Clearing Agencies for Security-Based Swaps--Compliance Dates
----------------------------------------------------------------------------------------------------------------
Compliance Date
----------------------------------
Upon
registration, Authorizes/
Exchange Act Section \214\ Upon effective publication of directs Relief granted
date (July 16, final rules, or commission
2011) other action \215\
commission
action \216\
----------------------------------------------------------------------------------------------------------------
17A(g): Registration requirement.... ............... [check] ............... N/A \217\
17A(h): Voluntary registration...... [check] ............... ............... No.\218\
17A(i): Standards for clearing ............... [check] ............... N/A.\219\
agencies clearing SB swap
transactions.
17A(j): Rules....................... ............... ............... [check] N/A.
17A(k): Exceptions.................. ............... ............... [check] N/A.
17A(l)(1)-(2): Existing depository [check] ............... ............... No.\220\
institutions and derivative
clearing organizations--in general;
conversion of depository
institutions.
17A(l)(3): Existing depository ............... ............... [check] N/A.\221\
institutions and derivative
clearing organizations--sharing of
information.
17A(m): Modification of core ............... ............... [check] N/A.
principles.
----------------------------------------------------------------------------------------------------------------
As of July 16, 2011, ICE Trust U.S. LLC, ICE Clear Europe Limited
and the Chicago Mercantile Exchange Inc., which are operating pursuant
to exemptive authority granted by the Commission to clear CDS,\222\
will be
[[Page 36303]]
deemed registered with the Commission solely for the purpose of
clearing SB swaps pursuant to the Dodd-Frank Act.\223\
---------------------------------------------------------------------------
\214\ References to section 17A of the Exchange Act in this
table are to 15 U.S.C. 78q-1.
\215\ These provisions do not require compliance by market
participants on the Effective Date, unless the relevant Commission
action already has been undertaken. See supra note 26 and
accompanying text.
\216\ A number of Title VII provisions expressly (or implicitly)
apply only to ``registered'' persons. Until the related registration
processes for such persons have been established by final Commission
rules, and such persons have become registered pursuant to such
rules, they will not be required to comply with these Title VII
provisions. If a Title VII provision requires a rulemaking, such
provision will not necessarily go into effect on the Effective Date,
but instead will go into effect ``not less than'' 60 days after
publication of the related final rule or on July16, 2011, whichever
is later. See section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note.
\217\ Section 17A(g) of the Exchange Act, 15 U.S.C. 78q-1(g),
will not require compliance as of the Effective Date because
sections 17A(i) and (j) of the Exchange Act, 15 U.S.C. 78q-1(i) and
(j), require rulemaking regarding registration of clearing agencies
that clear SB swap transactions. The Commission notes that the
general clearing agency registration requirement under section
17A(b) of the Exchange Act, 15 U.S.C. 78q-1(b), also will apply to
SB swap clearing agencies when the provisions amending the
definitions of ``security'' to include SB swaps become effective on
the Effective Date. See supra note 17. As noted above, however, the
Commission intends to provide temporary relief from certain
provisions of the Exchange Act that would otherwise be applicable to
SB swaps. See supra note 22 and accompanying text. This includes
temporary relief from the clearing agency registration requirement
to certain persons with respect to SB swaps. Specifically, persons
that currently provide important post-trade, non-CCP clearance and
settlement processing services for SB swaps may be required to
register as a clearing agency as of the Effective Date (including
trade matching, collateral management, and tear-up/compression
services). Temporary relief for such persons would provide time for
the Commission to consider comments from industry on the issue of
registration of these non-CCP clearance and settlement service
providers, and to consider possible alternatives to full
registration as clearing agencies. See infra note 223 and
accompanying text.
\218\ Section 17A(h) provides that a person that clears trades
that are not required to be cleared may nevertheless register as a
clearing agency with the Commission. It is a voluntary provision.
\219\ Rules adopted under section 17A(i) of the Exchange Act, 15
U.S.C. 78q-1(i), apply only to registered clearing agencies.
Accordingly, compliance with such requirements will be required on
the later of the registration of the clearing agency and the
compliance date of the Commission rule establishing these clearing
agency standards.
\220\ Section 17A(l)(1)-(2) provides for the deemed registration
of certain clearing agencies. See infra note 223.
\221\ Section 17A(l)(3) of the Exchange Act, 15 U.S.C. 78q-l(3),
provides that the CFTC shall share certain information with the
Commission regarding derivatives clearing organizations deemed to be
registered.
\222\ The Commission has authorized five entities to clear
credit default swaps. See Exchange Act Release Nos. 60372 (July 23,
2009), 74 FR 37748 (July 29, 2009), 61973 (Apr. 23, 2010), 75 FR
22656 (Apr. 29, 2010) and 63389 (Nov. 29, 2010), 75 FR 75520 (Dec.
3, 2010) (CDS clearing by ICE Clear Europe Limited); 60373 (July 23,
2009), 74 FR 37740 (July 29, 2009), 61975 (Apr. 23, 2010), 75 FR
22641 (Apr. 29, 2010) and 63390 (Nov. 29, 2010), 75 FR 75518 (Dec.
3, 2010), (CDS clearing by Eurex Clearing AG); 59578 (Mar. 13,
2009), 74 FR 11781 (Mar. 19, 2009), 61164 (Dec. 14, 2009), 74 FR
67258 (Dec. 18, 2009), 61803 (Mar. 30, 2010), 75 FR 17181 (Apr. 5,
2010) and 63388 (Nov. 29, 2010), 75 FR 75522 (Dec. 3, 2010) (CDS
clearing by Chicago Mercantile Exchange Inc.); 59527 (Mar. 6, 2009),
74 FR 10791 (Mar. 12, 2009), 61119 (Dec. 4, 2009), 74 FR 65554 (Dec.
10, 2009), 61662 (Mar. 5, 2010), 75 FR 11589 (Mar. 11, 2010) and
63387 (Nov. 29, 2010) 75 FR 75502 (Dec. 3, 2010) (CDS clearing by
ICE Trust US LLC); 59164 (Dec. 24, 2008), 74 FR 139 (Jan. 2, 2009)
(temporary CDS clearing by LIFFE Administration and Management and
LCH.Clearnet Ltd.) (collectively, ``CDS Clearing Exemption
Orders''). LIFFE Administration and Management and LCH.Clearnet Ltd.
allowed their order to lapse without seeking renewal.
There are currently four clearing agencies authorized to
provide CCP services for SB swap transactions pursuant to these
orders. Eurex Clearing AG will not be deemed registered as a
clearing agency.
\223\ See section 17A(l) of the Exchange Act, 15 U.S.C. 78q-
1(1). To be deemed registered, a clearing agency must be a
depository institution that cleared swaps as a multilateral clearing
organization or a derivative clearing organization that cleared
swaps pursuant to an exemption from registration as a clearing
agency. Id. Section 17A(l) of the Exchange Act, 15 U.S.C. 78q-1(l),
provides that certain SB swap clearing agencies will be deemed
registered for the purpose of clearing SB swaps (``Deemed Registered
Provision''). Under this Deemed Registered Provision, a deemed
registered clearing agency will be required to comply with all
requirements of the Exchange Act, and the rules thereunder,
applicable to registered clearing agencies, including, for example,
the obligation to file proposed rule changes under section 19(b) of
the Exchange Act, 15 U.S.C. 78s(b). After the Deemed Registered
Provision becomes effective on the Effective Date, see supra Table
H, certain clearing agencies will no longer need an exemption from
registration as a clearing agency under section 17A of the Exchange
Act, 15 U.S.C. 78q-1, in order to clear SB swaps. As noted above,
ICE Trust U.S. LLC, ICE Clear Europe Limited, and the Chicago
Mercantile Exchange Inc., are eligible for the Deemed Registered
Provision based on the specified criteria in section 17A(l) of the
Exchange Act, 15 U.S.C. 78q-1(l). In addition, to facilitate the
operation of clearing agencies as CCPs for eligible CDS, the
Commission also adopted interim temporary exemptions (``Temporary
Exemptions'') from certain provisions of the Securities Act, the
Exchange Act and the Trust Indenture Act, 15 U.S.C. 77aaa et seq.,
subject to certain conditions. See Temporary Exemptions for Eligible
Credit Default Swaps to Facilitate Operation of Central
Counterparties to Clear and Settle Credit Default Swaps, 74 FR 3967
(Jan. 22, 2009). The Commission extended the expiration date of the
final temporary rules until July 16, 2011. See Extension of
Temporary Exemptions for Eligible Credit Default Swaps to Facilitate
Operation of Central Counterparties to Clear and Settle Credit
Default Swaps, 75 FR 72660 (Nov. 26, 2010). The Commission is
considering extending the Temporary Exemptions. Once extended, the
Temporary Exemptions would continue to be available to those
clearing agencies that are deemed registered. The Commission also
has proposed exemptions that would allow clearing agencies in their
function as CCPs to offer or sell SB swaps subject to certain
conditions. These proposed exemptions, if adopted, would replace the
Temporary Exemptions and would extend to all SB swaps. See Proposed
Cleared SB Swap Exemptions, supra note 19.
---------------------------------------------------------------------------
By virtue of the broad definition of the term ``clearing agency''
in section 3(a)(23)(A) of the Exchange Act,\224\ certain entities that
provide non-CCP clearing agency services with respect to SB swaps would
be required to register as a clearing agency under section 17A(b) of
the Exchange Act as of the Effective Date.\225\ This issue arises for
these entities as of the Effective Date, and not before, because prior
to such time SB swaps (other than in limited circumstances) were not
deemed to be securities. Non-CCP clearing agency services include such
services such as trade matching,\226\ collateral management,\227\ and
tear-up/compression services,\228\ which are important post-trade
processing services for the SB swap markets (``non-CCP clearing agency
services''). On March 2, 2011, the Commission proposed exempting
certain market participants from the definition of clearing agency as
part of its clearing agency standards release.\229\ As noted above, the
Commission also intends to separately consider temporary relief from
section 17A(b) of the Exchange Act \230\ for persons that provide non-
CCP clearing agency services in connection with SB swaps so that those
persons are not required to be registered as a clearing agency on the
Effective Date.\231\
---------------------------------------------------------------------------
\224\ 15 U.S.C. 78c(a)(23)(A).
\225\ 15 U.S.C. 78q-1(b). As discussed above, the new
registration requirement for SB swap clearing agencies in section
17A(g) of the Exchange Act, 15 U.S.C. 78q-1(g), will not apply until
at least 60 days after rulemaking is completed.
\226\ See Clearing Agency Standards for Operation and
Governance, supra note 10 (discussing trade matching services).
\227\ Id. (discussing collateral management activities).
\228\ Id. (discussing tear-up and compression services).
\229\ Id. at 14494-96 (proposing, under section 36 of the
Exchange Act, 15 U.S.C. 78mm, an exemption to certain persons from
the definition of clearing agency in section 3(a)(23) of the
Exchange Act, 15 U.S.C. 78c(a)(23), and asking questions regarding
whether there are other persons for whom the Commission should grant
a similar exemption).
\230\ 15 U.S.C. 78q-1(b).
\231\ See supra note 217.
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Request for Comment:
Are there any provisions of section 17A of the Exchange
Act for which the Commission should grant temporary exemptive relief?
Please specify which provisions and provide a detailed explanation of
why granting such exemption would be necessary or appropriate in the
public interest, and consistent with the protection of investors.
I. Other Amendments to the Federal Securities Laws Relating to
Security-Based Swaps.
Table I lists the remaining statutory provisions of Title VII of
the Dodd-Frank Act that have not been addressed above.
Table I--Other Amendments to Federal Securities Laws Relating to Security-Based Swaps--Compliance Dates
----------------------------------------------------------------------------------------------------------------
Compliance date
----------------------------------------
Upon registration, Authorizes/directs/
Exchange act section Upon effective publication of limits commission Relief granted
date (July 16, final rules, or action \232\
2011) other commission
action \233\
----------------------------------------------------------------------------------------------------------------
761(a): Amendments to section [check] .................. .................. No.\236\
3(a) of the Exchange Act
\234\--Definitions (other
than the definition of
substantial position in
section 3(a)(67)(B)).\235\
761(a): Amendments to section .................. .................. [check] N/A.
3(a) of the Exchange Act
\237\--Definition of
substantial position in
section 3(a)(67)(B).\238\
761(b): Authority to further .................. .................. [check] N/A.
define terms.
762(a): Repeals section 206B [check] .................. .................. No.
and 206C of the Gramm-Leach-
Bliley Act (``GLBA'').\239\
762(b): Section 206A of GLBA: [check] .................. .................. No.
conforming amendment. \240\.
762(c): Sections 2A and 17 of [check] .................. .................. No.
the Securities Act:
conforming amendments. \241\
762(d): Sections 3A, 9, 10, [check] .................. .................. No.
15, 16, 20, and 21A of the
Exchange Act: conforming
amendments. \242\
763(e): Section 6(l) of the [check] .................. .................. Yes.
Exchange Act: trading in SB
swaps. \243\
[[Page 36304]]
763(f): Amends sections [check] .................. .................. No.
9(b)(1)-(3) of the Exchange
Act to add ``security-based
swaps''. \244\
764(b): Savings clause .................. .................. [check] \245\ N/A.
regarding Federal banking
agency authority.
765: Rulemaking on conflicts .................. .................. [check] N/A.
of interest.
766(b): Sections 13(d)(1) and [check] .................. .................. No.
(g)(1) of the Exchange Act:
beneficial ownership
reporting. \246\
766(c): Section 13(f)(1) of [check] .................. .................. No.
the Exchange Act: reports by
institutional investment
managers. \247\
766(d): Sections 15(b)(4)(C) [check] .................. .................. No.
and (b)(4)(F) of the
Exchange Act: administrative
proceeding authority. \248\
766(e): Section 13(o) of the .................. [check] \250\ .................. No.
Exchange Act: SB swap
beneficial ownership. \249\
767: Section 28(a) of the [check] .................. .................. N/A.\252\
Exchange Act: state gaming
and bucket shop laws. \251\
768: Sections 2(a) and 5(d) [check] .................. .................. No.\254\
of the Securities Act:
amendments to the Securities
Act; treatment of SB
swaps.\253\
769: Conforming definition in [check] .................. .................. No.
section 2(a)(54) of the
Investment Company Act of
1940. \255\
770: Conforming definition in [check] .................. .................. No.
section 202(a)(29) of the
Investment Advisers Act of
1940. \256\
771: Other authority of other [check] .................. .................. N/A.
agencies.
772(a): Section 36(c) of the [check] .................. .................. N/A.
Exchange Act: jurisdiction--
in general. \257\
772(b): Section 30(c) of the [check] .................. .................. N/A.
Securities Act:
jurisdiction--rule of
construction. \258\
773: Section 21B(f) of the [check] .................. .................. N/A.
Exchange Act: civil
penalties \259\.
774: Effective date.......... [check] .................. .................. N/A.
----------------------------------------------------------------------------------------------------------------
As indicated in Table I, the Commission finds, pursuant to section
36 of the Exchange Act,\260\ that it is necessary or appropriate in the
public interest, and is consistent with the protection of investors, to
grant a temporary conditional exemption from section 6(l) of the
Exchange Act to certain persons.\261\ Section 6(l) of the Exchange Act
\262\ would make it unlawful, as of the Effective Date, for any person
to effect a transaction in an SB swap with or for a person that is not
an eligible contract participant,\263\ unless such transaction is
effected on a national securities exchange registered pursuant to
section 6(b) of the Exchange Act.\264\
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\232\ These provisions do not require compliance by market
participants on the Effective Date, unless the relevant Commission
action already has been undertaken. See supra note 26 and
accompanying text.
\233\ A number of Title VII provisions expressly (or implicitly)
apply only to ``registered'' persons. Until the related registration
processes for such persons have been established by final Commission
rules, and such persons have become registered pursuant to such
rules, they will not be required to comply with these Title VII
provisions. If a Title VII provision requires a rulemaking, such
provision will not necessarily go into effect on the Effective Date,
but instead will go into effect ``not less than'' 60 days after
publication of the related final rule or on July16, 2011, whichever
is later. See section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note.
\234\ 15 U.S.C. 78c(a).
\235\ 15 U.S.C. 78c(a)(67)(B).
\236\ See supra note 22 and accompanying text.
\237\ 15 U.S.C. 78c(a).
\238\ 15 U.S.C. 78c(a)(67)(B).
\239\ 15 U.S.C. 78c note. This amendment, along with the
amendments in sections 762(b), (c), and (d) of the Dodd-Frank Act,
repeals GLBA, Securities Act, and Exchange Act provisions (as added
by the Commodity Futures Modernization Act of 2000) limiting the
Commission's authority over security-based swap agreements (as
defined in section 206B of the GLBA, 15 U.S.C. 78c note).
\240\ Id.
\241\ 15 U.S.C. 77b-1 and 77q.
\242\ 15 U.S.C. 78c-1, 78i, 78j, 78o, 78p, 78t, and 78u-1. See
supra note 224.
\243\ 15 U.S.C. 78f(l).
\244\ 15 U.S.C. 78i(b)(1)-(3). Section 763(f) makes conforming
amendments to the Exchange Act.
\245\ Section 764(b) provides that no appropriate Federal
banking agency shall be divested of any authority for any entity
over which it has authority.
\246\ 15 U.S.C. 78m(d)(1) and (g)(1).
\247\ 15 U.S.C. 78m(f)(1).
\248\ 15 U.S.C. 78o(b)(4)(C) and (b)(4)(F).
\249\ 15 U.S.C. 78m(o).
\250\ See Beneficial Ownership Reporting Requirements and
Security-Based Swaps, Exchange Act Release No. 64628 (June 8, 2011),
available at http://www.sec.gov/rules/final/2011/34-64628.pdf.
\251\ 15 U.S.C. 78bb(a).
\252\ This section limits the scope of applicability of certain
provisions of the Exchange Act and addresses certain state law
issues.
\253\ 15 U.S.C. 77b(a) and 77e(d).
\254\ The Commission has proposed exemptions from the
registration requirements of the Securities Act for offers or sales
of SB swaps issued by certain clearing agencies satisfying certain
conditions. See Proposed Cleared SB Swap Exemptions, supra note 19.
\255\ 15 U.S.C. 80a-2(a)(54). Section 769 of the Dodd-Frank Act
makes conforming amendments to section 2(a)(54) the Investment
Company Act of 1940.
\256\ 15 U.S.C. 80b-2(a)(29). Section 770 of the Dodd-Frank Act
makes conforming amendments to section 202(a)(2) of the Investment
Advisers Act of 1940.
\257\ 15 U.S.C. 78mm(c).
\258\ 15 U.S.C. 78dd(c).
\259\ 15 U.S.C. 78u-2(f).
\260\ 15 U.S.C. 78mm.
\261\ 15 U.S.C. 78f(l).
\262\ Id.
\263\ See section 1a(18) of the Commodity Exchange Act, 7 U.S.C.
1a(18).
\264\ 15 U.S.C. 78f(b).
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Title VII amended the definition of eligible contract participant
in the Commodity Exchange Act.\265\ A number
[[Page 36305]]
of commenters have raised concerns about potential uncertainty
regarding the definition of ``eligible contract participant'' as a
result of the Title VII amendments to that definition.\266\ They have
suggested, among other things, that market participants may cease or
limit their business with counterparties that could potentially be
considered non-eligible contract participants when the Dodd-Frank Act
amendments to the definition of eligible contract participant go into
effect.\267\
---------------------------------------------------------------------------
\265\ Section 721(a) of the Dodd-Frank Act amended section
1a(18) of the Commodity Exchange Act, 7 U.S.C. 1a(18), to include a
new definition of the term ``eligible contract participant.''
\266\ See, e.g., Trade Association Letter, supra note 28 (``The
definition of [eligible contract participant] was amended by [the
Dodd-Frank Act], and the [Commission and the CFTC] have sought
comments in [the Entity Definitions Release] on how to further
define such term, including how to interpret the phrase
``discretionary basis.'' Until the term [eligible contract
participant] is further defined in a final rulemaking, market
participants will not know whether they are dealing with an
[eligible contract participant], and where the line is between their
institutional and retail businesses. As a result, they will not know
* * * whether certain transactions are subject to the new
requirement for [non-eligible contract participant] transactions to
be executed on an exchange * * *. As a result, market participants
may cease or severely limit their business with counterparties that
could potentially be considered [non-eligible contract participants]
under the Dodd-Frank statutory definition of [eligible contract
participant].'').
\267\ Id.
---------------------------------------------------------------------------
The Commission finds that temporary exemption from section 6(l) of
the Exchange Act \268\ for persons that meet the definition of eligible
contract participant as set forth in section 1a(12) of the Commodity
Exchange Act (as in effect on July 20, 2010) \269\ is necessary or
appropriate in the public interest, and is consistent with the
protection of investors, because it would allow persons currently
participating in the SB swap markets that could potentially be
considered non-eligible contract participants under the definition of
eligible contract participant as amended by Title VII of the Dodd-Frank
Act, to continue to do so until the term eligible contract participant
is further defined in final rulemaking. Accordingly, the Commission is
providing a temporary conditional exemption pursuant to section 36 of
the Exchange Act \270\ from section 6(l) of the Exchange Act \271\ for
eligible contract participants under current law. The temporary
exemption will expire on the effective date for the final rules further
defining the term eligible contract participant.
---------------------------------------------------------------------------
\268\ 15 U.S.C. 78(f)(l).
\269\ 7 U.S.C. 1a(12) (as in effect on July 20, 2010).
\270\ 15 U.S.C. 78mm.
\271\ 15 U.S.C. 78f(l).
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In addition, the Commission has received comments \272\ expressing
concern regarding the implication of the incorporation of SB swaps into
the definition of ``security.'' \273\ Commenters have indicated that
they are still analyzing the full implication of such expansion of the
definition of security, but that it will take time.\274\ Market
participants therefore have requested temporary relief from certain
provisions of the Exchange Act that will impose new obligations on
counterparties to SB swaps so that they may complete their analysis and
submit requests for more targeted relief.\275\ The Commission intends
to separately address relief in this area.\276\
---------------------------------------------------------------------------
\272\ See supra note 28.
\273\ The Commission notes however that it has not received any
comments regarding the definition of ``security future'' or the
possibility that SB swaps may be characterized as security futures.
Section 3(a)(55) of the Exchange Act, 15 U.S.C. 78c(a)(55), excludes
from the definition of security future ``any agreement, contract, or
transaction excluded from the Commodity Exchange Act under section
2(c), 2(d), 2(f), or 2(g) of the Commodity Exchange Act (as in
effect on the date of enactment of the Commodity Futures
Modernization Act of 2000) or title IV of the Commodity Futures
Modernization Act of 2000.'' Although the Dodd-Frank Act repealed
certain provisions of the Commodity Exchange Act added by the CFMA,
Title VII did not affect this exclusion or otherwise affect the
legal certainty provided by section 3(a)(55) of the Exchange Act
regarding the potential scope of the definition of security future.
\274\ See supra note 28 and note 275.
\275\ See Trade Association Letter, supra note 28.
\276\ See supra note 22 and accompanying text.
---------------------------------------------------------------------------
Moreover, the Commission has proposed exemptions under the
Securities Act, the Exchange Act, and the Trust Indenture Act for SB
swaps issued by certain clearing agencies satisfying certain
conditions.\277\ The proposed exemptive rules would exempt transactions
by clearing agencies in these SB swaps from all provisions of the
Securities Act, other than the section 17(a) \278\ antifraud
provisions, as well as exempt these SB swaps from Exchange Act
registration requirements and from the provisions of the Trust
Indenture Act, provided certain conditions are met.\279\
---------------------------------------------------------------------------
\277\ See Proposed Cleared SB Swap Exemptions, supra note 19 and
discussion supra note 223.
\278\ 15 U.S.C. 77q(a).
\279\ See Proposed Cleared SB Swap Exemptions, supra note 19.
---------------------------------------------------------------------------
Request for Comment:
Is the temporary exemption from section 6(l) of the
Exchange Act appropriate? If not, why not? Is the condition that
transactions be limited to eligible contract participants as defined
under current law sufficient to protect SB swap market participants
that would otherwise receive the protection of the exchange-trading
requirement of section 6(l) of the Exchange Act?
Are there any provisions set out in Table I above, other
than those for which the Commission has indicated that it will be
providing guidance, and where appropriate, temporary relief, for which
the Commission should grant temporary exemptive relief? Please specify
which provisions and provide a detailed explanation of why granting
such exemption would be necessary or appropriate in the public
interest, and consistent with the protection of investors.
J. Section 29(b) of the Exchange Act
Section 29(b) of the Exchange Act generally provides that contracts
made in violation of any provision of the Exchange Act, or the rules
thereunder, shall be void ``(1) as regards the rights of any person
who, in violation of any such provision, * * * shall have made or
engaged in the performance of any such contract, and (2) as regards the
rights of any person who, not being a party to such contracts, shall
have acquired any right thereunder with actual knowledge of the facts
by reason of which the making or performance of such contracts in
violation of any such provision * * *.'' \280\ As discussed above, the
Commission does not believe that provisions of Title VII for which the
Commission has taken the view that compliance will either be triggered
by registration of a person or by adoption of final rules by the
Commission, or for which the Commission has provided an exception or
exemptive relief herein, require compliance as of the Effective Date.
The Commission thus does not believe that section 29(b) of the Exchange
Act \281\ would apply to such provisions. For the avoidance of doubt,
however, and to avoid possible legal uncertainty or market disruption,
the Commission is granting temporary exemptive relief from section
29(b) of the Exchange Act.\282\
---------------------------------------------------------------------------
\280\ 15 U.S.C. 78cc(b).
\281\ Id.
\282\ Id.
---------------------------------------------------------------------------
The Commission is exercising its authority under section 36 of the
Exchange Act \283\ to temporarily exempt any SB swap contract entered
into on or after the Effective Date from being void or considered
voidable by reason of section 29 of the Exchange Act \284\ because any
person that is a party to the SB swap contract violated a provision of
the Exchange Act that was amended or added by subtitle B of Title VII
of the Dodd Frank Act and for which the Commission has taken the view
that compliance will be triggered by registration of a person or by
adoption of final rules by the Commission, or for which the Commission
has provided an exception or exemptive relief herein,
[[Page 36306]]
until such date as the Commission specifies.
---------------------------------------------------------------------------
\283\ 15 U.S.C. 78mm.
\284\ 15 U.S.C. 78cc(b).
---------------------------------------------------------------------------
The Commission finds that such exemption is necessary or
appropriate in the public interest, and is consistent with the
protection of investors, because the legal uncertainty that could
result if contracts entered into after the Effective Date were void or
voidable under section 29(b) of the Exchange Act \285\ could be
disruptive to the financial markets, create confusion for both
financial institutions and their customers, or result in unnecessary
and wasteful litigation.
---------------------------------------------------------------------------
\285\ Id.
---------------------------------------------------------------------------
As previously discussed, once the relevant provisions of the Dodd-
Frank Act take effect,\286\ persons effecting transactions in SB swaps,
or engaged in acts, practices, and courses of business involving SB
swaps, will be subject to the general antifraud and anti-manipulation
provisions of the Federal securities laws that were in place before the
enactment of the Dodd-Frank Act, including sections 9(a) and 10(b) of
the Exchange Act,\287\ rule 10b-5 thereunder \288\ (and the
prohibitions against insider trading), section 15(c) of the Exchange
Act,\289\ and section 17(a) of the Securities Act,\290\ among others.
Persons would retain all available rights as a result of any violation
of these general antifraud and anti-manipulation provisions.
---------------------------------------------------------------------------
\286\ See section 774 of the Dodd-Frank Act.
\287\ 15 U.S.C. 78i(a) and 78j(b).
\288\ 17 CFR 240.10b-5.
\289\ 15 U.S.C. 78o(c).
\290\ 15 U.S.C. 77q(a).
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III. Solicitation of Comments
The Commission intends to monitor closely the transition of the
derivatives markets to regulated markets and to determine to what
extent, if any, additional regulatory action may be necessary. The
Commission is soliciting public comment on all aspects of these
exemptions and the guidance it provided regarding compliance dates,
including:
1. Is the guidance provided in this section useful, appropriate,
and sufficient for persons to determine which amendments to the
Exchange Act by Title VII require compliance on July 16, 2011? If not,
please explain and provide examples of which provisions require
additional guidance.
2. Are there other provisions of the Exchange Act as amended by the
Dodd-Frank Act for which temporary exemptive relief should be granted?
Please provide section references and provide a detailed explanation of
why granting such an exemption would be necessary or appropriate in the
public interest, and consistent with the protection of investors.
3. Is the duration of the temporary exemptions granted in this
Order appropriate? If not, for which exemptions are the duration not
appropriate and what should be the appropriate duration?
4. Should any conditions be placed on any of these exemptions? If
so, which exemptions? Please explain and provide specific examples.
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Comments may be submitted by any of
the following methods:
IV. Temporary Exemptions and Other Temporary Relief
For the reasons discussed above in Part II, the Commission is
granting the following temporary relief:
It is hereby ordered, pursuant to section 36 of the Securities
Exchange Act of 1934, that no reporting party (as defined in 17 CFR
242.900) shall be required to report any pre-enactment security-based
swap (as defined in 17 CFR 242.900) under section 3C(e)(1) of the
Securities Exchange Act of 1934 until the date six (6) months after the
date a security-based swap data repository that is capable of accepting
the asset class (as defined in 17 CFR 242.900) of such security-based
swap is registered by the Commission.
It is hereby further ordered, pursuant to section 36 of the
Securities Exchange Act of 1934, that security-based swap dealers and
major security-based swap participants are exempt from the requirements
of section 3C(g)(5)(B) of the of the Securities Exchange Act of 1934
until the earliest compliance date set forth in any of the final rules
regarding section 3C(b) of the Securities Exchange Act of 1934.
It is hereby further ordered, pursuant to section 36 of the
Securities Exchange Act of 1934, that registered clearing agencies
under section 17A of the Securities Exchange Act of 1934 are exempt
from the requirements of sections 3C(j)(1) and (2) of the of the
Securities Exchange Act of 1934 until the earliest compliance date set
forth in any of the final rules regarding section 3C(j)(2) of the
Securities Exchange Act of 1934.
It is hereby further ordered, pursuant to section 36 of the
Securities Exchange Act of 1934, that persons that operate a facility
for the trading or processing of security-based swaps that is not
currently registered as a national securities exchange or that cannot
yet register as a security-based swap execution facility because final
rules for such registration have not yet been adopted are exempt from
the requirements of section 3D(a)(1) of the Securities Exchange Act of
1934 until the earliest compliance date set forth in any of the final
rules regarding registration of security-based swap execution
facilities.
It is hereby further ordered, pursuant to section 36 of the
Securities Exchange Act of 1934, that registered clearing agencies
under section 17A of the Securities Exchange Act of 1934 are exempt
from the requirements of section 3D(c) of the Securities Exchange Act
of 1934 until the earliest compliance date set forth in any of the
final rules regarding registration of security-based swap execution
facilities.
It is hereby further ordered, pursuant to section 36 of the
Securities Exchange Act of 1934, that security-based swap dealers and
major security-based swap participants are exempt from the requirements
of section 3E(f) of the Securities Exchange Act of 1934 until the date
upon which the rules adopted by the Commission to register security-
based swap dealers and major security-based swap participants become
effective.
It is hereby further ordered, pursuant to section 36 of the
Securities Exchange Act of 1934, that entities that meet the definition
of security-based swap data repository as set forth in section 3(a)(75)
of the Securities Exchange Act of 1934 are exempt from requirements of
sections 13(n)(5)(D)(i), 13(n)(5)(F), 13(n)(5)(G), 13(n)(5)(H), and
13(n)(7)(A) through (C) of the Securities Exchange Act of 1934 until
the earlier of (1) the date the Commission grants registration to the
security-based swap data repository and (2) the earliest compliance
date for any of the final rules regarding the registration of security-
based swap data repositories.
It is hereby further ordered, pursuant to section 15F(b)(6) of the
Securities Exchange Act of 1934, that security-based swap dealers and
major security-based swap participants are temporarily excepted from
the prohibition of section 15F(b)(6) of the Securities Exchange Act of
1934 with respect to persons subject to a statutory disqualification
(as defined in section 3(a)(39) of the Securities Exchange Act of 1934)
who are currently associated with a security-based swap dealer or major
security-based swap participant and who effect or are involved in
effecting security-based swaps on behalf of such security-based swap
dealer or major security-based swap participant until the date upon
which rules adopted by the Commission to register security-based
[[Page 36307]]
swap dealers and major security-based swap participants become
effective.
It is hereby further ordered, pursuant to section 36 of the
Securities Exchange Act of 1934, that any person that meets the
definition of eligible contract participant as set forth in section
1a(12) of the Commodity Exchange Act (as in effect on July 20, 2010) is
exempt from the requirements of section 6(l) of the Securities Exchange
Act of 1934 with respect to a transaction in a security-based swap
until the effective date for the final rules further defining the term
eligible contract participant, provided that such person effects such
transaction with or for a person that also meets the definition of
eligible contract participant as set forth in section 1a(12) of the
Commodity Exchange Act (as in effect on July 20, 2010).
It is hereby further ordered, pursuant to section 36 of the
Securities Exchange Act of 1934, that no contract entered into on or
after July 16, 2011 shall be void or considered voidable by reason of
section 29(b) of the Securities and Exchange Act of 1934 because any
person that is a party to the contract violated a provision of the
Securities Exchange Act of 1934 that was amended or added by subtitle B
of the Wall Street Transparency and Accountability Act of 2010 and for
which the Commission has taken the view that compliance will be
triggered by registration of a person or by adoption of final rules by
the Commission, or for which the Commission has provided an exception
or exemptive relief herein, until such date as the Commission
specifies.
By the Commission.
Dated: June 15, 2011.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-15432 Filed 6-21-11; 8:45 am]
BILLING CODE 8011-01-P