The Securities and Exchange Commission finalized rules related to the registration of security-based swap dealers and major security-based swap participants (collectively, SBS Entities). At the same time, it proposed a new rule of practice so that SBS Entities could apply to the Commission for authority to permit certain persons subject to statutory disqualifications to continue transacting security-based swaps “if such continuation is consistent with the public interest.” Unlike for the registration of swap dealers and major swap dealers under the regime established by the Commodity Futures Trading Commission, the SEC will directly process all SBS Entities’ registration applications, as opposed to a self-regulatory organization; under the CFTC’s regime, the National Futures Association handles the processing of all swap dealer and major swap participant registrations. In applying for registration, SBS Entities would be required to file two certifications with the SEC. One would come from a senior officer who would be required to certify that, “after due inquiry,” he or she reasonably determined that the applicant had developed and implemented policies and procedures to avoid violations of federal securities laws or rules, and that he or she had documented the process to permit such a conclusion. In addition, the chief compliance officer or his or her designee would be required to file a certification that he or she neither knows or “in the exercise of ‘reasonable care’ should have known” that any person associated with the SBS Entity who transacts in security-based swaps is not subject to a statutory disqualification, unless otherwise authorized. The registration rules will be effective sixty days after their publication in the Federal Register. (Click here for additional information regarding the registration requirements in the article “SEC Adopts Registration Rules for Security-Based Swap Dealers and Major Security-Based Swap Participants” in the August 7, 2015 edition of Corporate & Financial Weekly by Katten Muchin Rosenman LLP.)
My View: It is too late to bemoan the failure of Congress to create a single financial services regulator in the US to oversee both the futures and securities markets and industry. This was an opportunity most recently lost during the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. However, as much as possible, the Securities and Exchange Commission and the Commodity Futures Trading Commission should work together to maximize efficiency for industry participants. The SEC devising an entirely different registration regime and process from the CFTC for swap entities required to be registered is not consistent with this objective. It would have been far more desirable for the SEC to have leveraged off of the registration process that the CFTC already has instituted for swap dealers and major swap participants than to create a new regime from scratch.