On June 10th, the SEC announced that it is taking steps to clarify the requirements that will apply to security-based swap transactions as of July 16, 2011, the effective date of Title VII of the Dodd-Frank Act, and to provide appropriate temporary relief. The SEC will:

  • Provide guidance regarding which provisions of Title VII will become operable as of July 16, and, where appropriate, provide temporary relief from several of these provisions.
  • Provide guidance regarding, and where appropriate, temporary relief from, the various pre-Dodd-Frank provisions of the Exchange Act that would otherwise apply to security-based swaps on July 16. Under Dodd-Frank, security-based swaps would be included in the definition of "security" under the Exchange Act, and while such swaps will be subject to provisions addressing fraud and manipulation, the SEC intends to provide temporary relief from certain other provisions of the Exchange Act so that the industry will have time to seek, and the SEC to consider, what if any further guidance or action is required.
  • Take other actions such as extending existing temporary rules under the Securities Act, the Exchange Act, and the Trust Indenture Act, and extending existing temporary relief from exchange registration under the Exchange Act (see proposed rule above).

SEC Press Release. On June 7th, the Wall Street Journal reported that the derivatives industry is growing increasingly concerned by the uncertainty surrounding the legality of derivatives trading after July 16. Although the SEC and CFTC have promised to adopt "guidance" by then, some fear that the "guidance" will be insufficient to prevent litigation over the legality of the trades. Uncertainty. See also Reuters (CFTC safe harbor solution).