On October 31, the Securities and Exchange Commission took an unusual additional step towards implementing its rules for security-based swaps (SBS) by issuing a document entitled “Commission Statement on Certain Provisions of Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants.” The novelty of the Statement is that it amounts to a promise of five years of future no-action relief from enforcement after implementation of the SBS rules for any SBS Entity (as defined below) that chooses to follow certain Commodity Futures Trading Commission external business conduct rules for its SBS trading instead of complying with the SEC’s analogous (but slightly different) business conduct rules for SBS. An SBS Entity is any entity that is registered with the SEC as either (1) an SBS dealer or (2) a major SBS participant.
The Statement applies only to the particular SBS business conduct rules set out in 15Fh-1 to 15Fh-6 under the Securities Exchange Act of 1934, and only to the particular extent specified in the Statement.
The Statement is an odd, time-limited way to achieve harmonization of CFTC and SEC swap rules. The position represented by the Statement will, however, be particularly helpful in alleviating (albeit temporarily) the compliance burdens faced by an entity that becomes dual registered as both a swap dealer and an SBS dealer when the SBS rules come into effect.