SEC Further Delays Application of Securities Laws to Security-based Swaps | Practical Law

SEC Further Delays Application of Securities Laws to Security-based Swaps | Practical Law

The SEC issued an interim final rule extension that delays the application of most US securities laws to security-based swaps until February 11, 2017.

SEC Further Delays Application of Securities Laws to Security-based Swaps

Practical Law Legal Update 1-557-3205 (Approx. 4 pages)

SEC Further Delays Application of Securities Laws to Security-based Swaps

by Practical Law Finance
Published on 11 Feb 2014 • USA (National/Federal)
The SEC issued an interim final rule extension that delays the application of most US securities laws to security-based swaps until February 11, 2017.
On February 7, 2014, the SEC issued an interim final rule (IFR) extension delaying the application of certain US securities laws to security-based swaps (SBS) for three additional years, until February 11, 2017. The original interim final rule was issued in July 2011 (see Legal Update, Dodd-Frank Delay: SEC Issues Further Temporary Securities Law Exemptions for Security-based Swaps) and, after a one-year delay, the US securities laws were scheduled to become applicable to SBS on February 11, 2014 (see Legal Update, SEC Delays Application of Securities Laws to Security-based Swaps).
The delay in the application of the securities laws to SBS allows SBS to continue to trade as they did prior to the enactment of Title VII of the Dodd-Frank Act, provided that the SBS:
  • Is a "security-based swap agreement" as defined prior to the enactment of Dodd-Frank, which requires that the swap agreement be entered into between eligible contract participants (ECPs) (as defined prior to Dodd-Frank) and is subject to individual negotiation.
  • Falls under the Securities Act definition of "Security" due solely to the expansion of that definition under Title VII of the Dodd-Frank Act.
This extension does not alter the IFR in any respect other than its expiration date. The following rules will remain in effect under the IFR extension:
  • Securities Act Rule 240 (17 C.F.R. § 230.240), which exempts SBS from all provisions of the Securities Act except for the antifraud provisions of Section 17(a) of the Securities Act, as long as the SBS:
    • is a SBS agreement, as defined prior to the effective date of Title VII; and
    • has been entered into by between ECPs.
  • Exchange Act Rules 12a-11 and 12h-1 (17 C.F.R. §§ 240.12a-11, 240.12h-1) which exempt any SBS offered or sold in reliance on Securities Act Rule 240 from the registration requirements of Exchange Act Sections 12(a) and 12(g).
  • Trust Indenture Act of 1939 (TIA) Rule 4d-12 (17 C.F.R. § 260.4d-12), which exempts any SBS offered or sold in reliance on Securities Act Rule 240 from the provisions of the TIA.
It should be noted that the expiration of the IFR and the corresponding application of the US securities laws to SBS will primarily impact uncleared SBS, as most cleared SBS have been granted a permanent exemption from the US securities laws (see Practice Note, US Derivatives Regulation: Application of Securities Laws to Security-based Swaps: Cleared Security-based Swaps Exempt from Securities Laws).
For background on the initial delay of the application of the US securities laws to SBS, see Legal Update, Dodd-Frank Delay: SEC Issues Further Temporary Securities Law Exemptions for Security-based Swaps.
For more information on the application of US securities laws to security-based swaps, see Practice Note, US Derivatives Regulation: Application of Securities Laws to Security-based Swaps.
For information on other important Dodd-Frank swap dates, see US Derivatives Regulation: Compliance Calendar.