[Federal Register Volume 78, Number 30 (Wednesday, February 13, 2013)]
[Notices]
[Pages 10218-10220]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-03214]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68864; File No. S7-27-11]
Order Extending Temporary Exemptions Under the Securities
Exchange Act of 1934 in Connection With the Revision of the Definition
of ``Security'' to Encompass Security-Based Swaps, and Request for
Comment
February 7, 2013.
I. Introduction
On July 1, 2011, the Securities and Exchange Commission
(``Commission'') issued an order granting temporary exemptive relief
from compliance with certain provisions of the Securities Exchange Act
of 1934 (``Exchange Act'') in connection with the revision of the
Exchange Act definition of ``security'' to encompass security-based
swaps (``Exchange Act Exemptive Order'').\1\ Certain temporary
exemptions contained in the Exchange Act Exemptive Order are set to
expire upon the compliance date for final rules further defining the
terms ``security-based swap'' and ``eligible contract participant,''
which is scheduled to occur on February 11, 2013 (``Expiring Temporary
Exemptions'').\2\ The
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Commission is extending the expiration date for these Expiring
Temporary Exemptions until February 11, 2014 \3\ and requesting comment
on any exemption contained in the Exchange Act Exemptive Order and any
additional relief that should be granted upon the expiration of the
extension.
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\1\ See Order Granting Temporary Exemptions under the Securities
Exchange Act of 1934 in Connection with the Pending Revisions of the
Definition of ``Security'' to Encompass Security-Based Swaps,
Exchange Act Release No. 64795 (Jul. 1, 2011), 76 FR 39927 (Jul. 7,
2011).
\2\ Id. See also Further Definition of ``Swap,'' ``Security-
Based Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps;
Security-Based Swap Agreement Recordkeeping, Exchange Act Release
No. 67453 (Jul. 18, 2012), 77 FR 48207 (Aug. 13, 2012) (Joint Final
Rule with the CFTC) (``Product Definitions Adopting Release''),
which postpones the Expiring Temporary Exemptions expiration date to
February 11, 2013. The Financial Industry Regulatory Authority
(``FINRA'') filed a proposed rule change, which was effective upon
receipt by the Commission, extending the expiration date of FINRA
Rule 0180 (Application of Rules to Security-Based Swaps), which
temporary limits the application of certain FINRA rules with respect
to security-based swaps, to July 17, 2013. See Self-Regulatory
Organizations; Financial Industry Regulatory Authority, Inc.; Notice
of Filing and Immediate Effectiveness of Proposed Rule Change to
Extend the Expiration Date of FINRA Rule 0180 (Application of Rules
to Security-Based Swaps), Exchange Act Release No. 68471 (Dec. 19,
2012).
\3\ The Exchange Act Exemptive Order also provided a temporary
exemption from Sections 5 and 6 of the Exchange Act until the
earliest compliance date set forth in any of the final rules
regarding registration of security-based swap execution facilities.
The Exchange Act Exemptive Order also provided a temporary exemption
that no security-based swap contract entered into on or after July
16, 2011 shall be void or considered voidable by reason of Section
29(b) of the Exchange Act because any person that is a party to the
contract violated a provision of the Exchange Act for which the
Commission has provided exemptive relief in the Exchange Act
Exemptive Order, until such time as the underlying exemptive relief
expires. This Order does not affect the timing of the expiration of
either of these exemptions.
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II. Discussion
Title VII of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (``Dodd-Frank Act'') amended the Exchange Act definition
of ``security'' to expressly encompass security-based swaps.\4\ The
expansion of the definition of the term ``security'' results in the
expansion of the scope of the regulatory provisions of the Exchange Act
to security-based swaps. This expansion has raised certain complex
questions that require further consideration by the staff.
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\4\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124, Stat. 1376 (2010); Exchange Act
Section 3(a)(10), 15 U.S.C. 78c(a)(10), as revised by Section
761(a)(2) of the Dodd-Frank Act.
Title VII established a new regulatory framework for swaps and
security-based swaps. Under the comprehensive framework established
in Title VII, the Commission is given authority over security-based
swaps, the CFTC is given regulatory authority over swaps, and the
CFTC and SEC are provided with joint regulatory authority over mixed
swaps. See Section 3(a)(68) of the Exchange Act, 15 U.S.C.78c(a)(68)
(as added by Section 761(a)(6) of the Dodd-Frank Act) and Section
1a(47) of the CEA, 7 U.S.C. 1a(47) (as added by Section 721(a) of
the Dodd-Frank Act) for the definitions of security-based swap and
swap, respectively. See also Product Definitions Adopting Release.
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On July 1, 2011, the Commission granted temporary relief from
compliance with certain provisions of the Exchange Act by providing for
the Expiring Temporary Exemptions.\5\ Specifically, the Expiring
Temporary Exemptions, which are set to expire on the compliance date
for final rules further defining the terms ``security-based swap'' and
``eligible contract participant,'' provide for the following exemptions
from Exchange Act: (a) Temporary exemptions in connection with
security-based swap activity by certain ``eligible contract
participants''; and (b) temporary exemptions specific to security-based
swap activities by registered brokers and dealers.\6\ As previously
noted, these Expiring Temporary Exemptions are currently scheduled to
expire on February 11, 2013 for purposes of the Exchange Act Exemptive
Order.\7\
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\5\ See Exchange Act Exemptive Order.
\6\ See Exchange Act Exemptive Order at 39-44.
\7\ See Product Definitions Adopting Release.
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The Commission recently received a request to extend the Expiring
Temporary Exemptions until July 17, 2013, citing concerns that key
issues and questions regarding the application of the federal
securities laws to security-based swaps remain unresolved and that the
expiration of these exemptions on February 11, 2013 would be
premature.\8\ The request also noted concerns about the potential for
unnecessary disruption to the security-based swap market.\9\
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\8\ See SIFMA Request for Extension of the Expiration Date of
the SEC's Exchange Act Exemptive Order and SBS Interim final Rules
(Dec. 20, 2012), which is available at http://www.sec.gov/comments/s7-27-11/s72711-12.pdf. The Commission has also received a request
for certain permanent exemptions upon the expiration of the
exemptions contained in the Exchange Act Exemptive Order. See SIFMA
SBS Exemptive Relief Request (Dec. 5, 2011), which is available at
http://www.sec.gov/comments/s7-27-11/s72711-10.pdf.
\9\ See SIFMA Request for Extension of the Expiration Date of
the SEC's Exchange Act Exemptive Order and SBS Interim final Rules
(Dec. 20, 2012).
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To date, the Commission has proposed substantially all of the rules
related to the new regulatory regime for derivatives under Title VII
and has recently begun the process of adopting these rules.\10\ In
furtherance of the Dodd-Frank Act's stated objective of promoting
financial stability in the U.S. financial system, the Commission has
expressed its intent to move forward deliberatively in implementing the
requirements of the Dodd-Frank Act, while minimizing unnecessary
disruption and costs to the markets.\11\
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\10\ See Statement of General Policy on the Sequencing of the
Compliance Dates for Final Rules Applicable to Security-Based Swaps
Adopted Pursuant to the Securities Exchange Act of 1934 and the
Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange
Act Release No. 67177 (Jun. 11, 2012). See also Product Definitions
Adopting Release; Further Definition of ``Swap Dealer,'' ``Security-
Based Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-
Based Swap Participant'' and ``Eligible Contract Participant'',
Exchange Act Release No. 66868 (Apr. 27, 2012), 77 FR 30596 (May 23,
2012) (``Entity Definitions Adopting Release''); 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, Exchange Act Release No. 67286 (Jun.
28, 2012), 88 FR 41602 (Jul. 13, 2012); Clearing Agency Standards,
Exchange Act Release No. 68080, (Oct. 22, 2012), 77 FR 66219 (Nov.
2, 2012).
\11\ See Exchange Act Exemptive Order.
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The Commission believes it is necessary or appropriate in the
public interest and consistent with the protection of investors to
extend the Expiring Temporary Exemptions until February 11, 2014 in
order to both avoid a potential unnecessary disruption to the security-
based swap market that may result without an extension,\12\ and provide
the Commission with additional time to consider the potential impact of
the revision of the Exchange Act definition of ``security'' in light of
recent Commission rulemaking efforts under Title VII of the Dodd-Frank
Act. Extending the Expiring Temporary Exemptions also would facilitate
a coordinated consideration of these issues with related relief
provided by FINRA under its rulebook.\13\ While the comment letter
recommended extending the temporary relief to July 17, 2013, we have
determined to extend the relief to February 11, 2014. Accordingly,
pursuant to the Commission's authority under Section 36 of the Exchange
Act,\14\ the Commission is extending the expiration date for the
Expiring Temporary Exemptions contained in the Exchange Act Exemptive
Order until February 11, 2014.\15\
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\12\ See supra note 8 and 9.
\13\ See supra note 2.
\14\ 15 U.S.C. 78mm. 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.
\15\ The expiration date coincides with the Commission's recent
amendment to the expiration dates in interim final rules that
provide exemptions under the Securities Act of 1933, the Exchange
Act, and the Trust Indenture Act of 1939 for those security-based
swaps that prior to July 16, 2011 were security-based swap
agreements and are defined as ``securities'' under the Securities
Act and the Exchange Act as of July 16, 2011 due solely to the
provisions of Title VII of the Dodd-Frank Act. See Extension of
Exemptions for Security-Based Swaps, Release No. 33-9383 (Jan. 29,
2013), 78 FR 7654 (Feb. 4, 2013).
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III. Request for Comment
The Commission believes that it would be useful to continue to
provide interested parties opportunity to comment on any exemption
contained in the Exchange Act Exemptive Order and any additional relief
that should be granted upon the expiration of the extension for the
Expiring Temporary Exemptions. Comments may be
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submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/exorders.shtml); or
Send an email to [email protected]. Please include
File Number S7-27-11 on the subject line; or
Use the Federal eRulemaking 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 St. NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-27-11. This file number
should be included on the subject line if email 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/exorders.shtml). Comments
are also available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F St. 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 change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.
IV. Conclusion
It is hereby ordered, pursuant to Section 36 of the Exchange Act,
that, the Expiring Temporary Exemptions contained in the Exchange Act
Exemptive Order in connection with the revision of the Exchange Act
definition of ``security'' to encompass security-based swaps are
extended until February 11, 2014.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-03214 Filed 2-12-13; 8:45 am]
BILLING CODE 8011-01-P