The SEC has proposed rules that lay out the process by which security-based swap dealers and security-based swap participants must register with the SEC. The rules stem from Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Under the law, the SEC has authority over “security-based swaps,” which are broadly defined as swaps based on (1) a single security or (2) a loan or (3) a narrow-based group or index of securities or (4) events relating to a single issuer or issuers of securities in a narrow-based security index. The CFTC, on the other hand, has primary regulatory authority over all other swaps.
In creating the new regulatory regime, Title VII envisions that some individuals or entities will act as dealers of security-based swaps, while others will be major participants in a transaction. As such, the Dodd-Frank Act mandates that anyone acting as either a “security-based swaps dealer” or “major security-based swaps participant” must first be registered with the SEC. Consequently, the Dodd-Frank Act authorizes the SEC to issue rules setting out the registration process for these security-based swap entities.
Separately, the SEC has previously proposed rules together with the CFTC and in consultation with the Board of Governors of the Federal Reserve System further defining the terms “security-based swap dealer” and “major security-based swap participant.” The SEC and the CFTC are considering comments to that proposal.
Under the proposed rules, security-based swap dealers and major security-based swap participants (collectively, security-based swap entities) would register with the SEC by electronically filing a new form, Form SBSE. The new form is based on the broker-dealer registration form, Form BD.
Security-based swap entities that are registered or registering with the CFTC would be able to register with the SEC by filing a shorter form with the SEC (Form SBSE-A) together with a copy of the form they file with the CFTC. Similarly, those security-based swaps entities that are registered with the Commission as broker-dealers also would be able to file a shorter form (Form SBSE-BD).
In addition, the proposed rule would require the security-based swap entities to:
- Promptly update their forms if the forms become inaccurate.
- Have a knowledgeable, senior officer provide a certification as to the firm’s financial, operational and compliance capabilities to the Commission within a specified timeframe.
- Obtain and retain certain information from each of its associated persons that are involved in effecting security-based swaps, and have its Chief Compliance Officer certify that no such associated person is “statutorily disqualified.”
The proposed rule also would also require each security-based swap entity that resides outside the U.S. to:
- Identify a U.S. agent who can accept legal documents on behalf of the company.
- Certify and submit an opinion of counsel that the non-U.S. entity is able to provide the SEC with access to its books and records and submit to on-site inspections and examination by the SEC.
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