On February 11, the Securities and Exchange Commission published the texts for two final rules and one proposed rule relating to the reporting of security-based swaps (SBS) that were adopted by the SEC in a meeting on January 14. These rules create a reporting regime for SBS that is equivalent to the reporting regime that the Commodity Futures Trading Commission has already created for swaps pursuant to requirements in the Dodd-Frank Act.
The first final rule (“Security-Based Swap Data Repository Registration, Duties, and Core Principle” (Release No 34-74246)) sets out the requirements for an entity to qualify as a SBS date repository (SDR) that is able to accept reports concerning one or more types or classes of SBS (such as credit derivatives or equity derivatives). Each SDR is responsible for receiving information about SBS from reporting parties and then disseminating that information to the public as required. The SDR registration rule becomes effective 60 days after publication in the Federal Register, but the compliance date for SDR registration is not effective until 365 days after publication.
The first final rule is available here.
The second final rule (“Regulation SBSR – Reporting and Dissemination of Security-Based Swap Information” (Release No 34-74244)) identifies the information that must be included in each SBS report and specifies a methodology for identifying the party that bears the reporting burden for each SBS. The rule contemplates that the report for any SBS will include, in addition to economic terms data, unique identification codes for traders, trading desks, counterparties, brokers and parent companies as well as information about the legal documentation for the trade. The reporting rule applies only to US persons and to registered SBS dealers and Major SBS Participants who are non-US persons, but substituted compliance applies if the SEC has made a formal comparability determination. The rule covers pre-enactment (i.e., pre-July 21, 2010) SBS that were still in effect on that date as well as transitional SBS.
The second final rule is available here.
The proposed rule (Release 34-74245) (1) completes Regulation SBSR by providing rules for the reporting of cleared SBS, (2) provides an interpretation explaining the application of Regulation SBSR to prime brokerage transactions and guidance concerning the reporting of SBS allocation, and (3) proposes the following compliance dates for SBS reporting:
- Compliance Date 1 – Mandatory reporting of newly executed and historical SBS to an SDR: Six months after the first registered SDR that accepts reports in a particular asset class commences operations. “[H]istorical security-based swaps in that asset class [should] be reported by Compliance Date 1, not on Compliance Date 1.” (In the view of the SEC, “Six months should allow adequate time for market participants to make the preparations necessary to connect with and report to a registered SDR, including analyzing and complying with the policies and procedures of the registered SDR and performing systems testing.”)
- Compliance Date 2 – Mandatory public dissemination of information concerning SBS: Nine months after the first registered SDR that accepts reports in a particular asset class commences operations.
The SEC provides an example of how the Compliance Dates will work: “SDR A registers with the Commission and, subsequently, commences operations as a registered SDR on June 1, 2015. Therefore, Compliance Date 1 (with respect to transactions in any asset class that can be accepted by SDR A) is December 1, 2015. SDR B, which accepts security-based swaps in the same asset class, registers and subsequently commences operations as a registered SDR on November 2, 2015. Mandatory transaction-by-transaction reporting pursuant to Rule 901 still begins on December 1, 2015. However, persons with the duty to report may report to either SDR A or SDR B, even though SDR B would have been registered for less than one month. . . . SDR A and SDR [B] must begin publicly disseminating last-sale reports, as required by Rule 902, on March 1, 2016.”
Comments on the proposed rule and the proposed Compliance Dates are due 45 days after publication of the proposal in the Federal Register.
The proposed rule is available here.