On May 1, 2013, the SEC released proposed rules (the “SEC Proposal”) that would govern cross-border activities in security-based swaps. Notably, the approach taken by the SEC with respect to securitybased swap activities differs from the approach taken by the Commodity Futures Trading Commission with respect to transnational swap activities (the “CFTC Proposal”). Under the SEC Proposal, the security-based swap regulatory regime would generally apply to security-based swap activities involving (i) a “U.S. person” and/or, (ii) under a so-called “territorial approach” to U.S. jurisdiction of security-based swap activity, a “transaction conducted within the United States.” Under the SEC Proposal, a “U.S. person” would include any natural person resident in the United States, any partnership, corporation, trust or other legal person organized or incorporated under the laws of the United States or having its principal place of business in the United States, any account (whether discretionary or nondiscretionary) of a U.S. person, as well as a foreign branch, agency or office of a U.S. person (but would exclude foreign central banks and international multilateral organizations such as members of the World Bank Group, the International Monetary Fund, the United Nations and similar organizations, among others, or their agencies and pension plans). The SEC Proposal’s definition of U.S. person differs from the definition of U.S. person under the CFTC Proposal and, according the SEC Proposal, the SEC considered, but explicitly declined to adopt, the definition used in Regulation S under the Securities Act of 1933.  

Under the SEC Proposal, the term “transaction conducted within the United States” includes any securitybased swap that is “solicited, negotiated, executed, or booked within the United States, by or on behalf of either counterparty to the transaction, regardless of the location, domicile, or residence status of either counterparty to the transaction.” The SEC clarified that it would not view clearing, reporting or engaging in collateral management for a security-based swap within the United States as causing that transaction to be considered to be conducted within the United States. According to the SEC Proposal, a securitybased swap transaction conducted through a foreign branch of a U.S. bank would not be a transaction conducted within the United States, subject to certain conditions. For further discussion of the SEC Proposal, including discussion of (1) the differences between the SEC Proposal and the CFTC Proposal, (2) obligations of security-based swap dealers, (3) reporting, clearing and trade execution requirements with respect to security-based swap activities, (4) de minimis calculations for security-based swap dealer registration and (5) “substituted compliance,” a regime through which the SEC would allow security-based swap market participants to satisfy some U.S. security-based swap regulations by complying with foreign regulatory requirements (if the SEC has made a determination that substituted compliance is available), please see the May 16, 2013 Davis Polk Client Memorandum, SEC Proposes Cross-Border Security- Based Swap Rules.

Comments on the SEC Proposal are due by August 21, 2013.