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Security-Based Swap Dealer (SBSD)
Practical Law Glossary Item 7-555-1267 (Approx. 3 pages)
Glossary
Security-Based Swap Dealer (SBSD)
Designation under Title VII of the Dodd-Frank Act for any person that:
- Holds itself out as a dealer in security-based swaps (SBS);
- Makes a market in security-based swaps;
- Regularly enters into security-based swaps with counterparties as an ordinary course of business for its own account; or
- Engages in activity causing itself to be commonly known in the trade as a dealer or market maker in security-based swaps.
(17 C.F.R. §§ 1.3 and 240.3a71-1.)
Federal regulators have determined that these entities could pose a risk to the soundness of the US financial system based on the magnitude and concentration of their swaps activity. SBSDs are therefore subject to an extensive framework of regulatory requirements under Title VII and related rulemaking, including internal and external business conduct rules and other obligations and restrictions (see US Derivatives Regulation: Requirements for Swap Dealers and SBSDs Checklist).
A de minimis exemption exists for parties meeting the above criteria that engage aggregate notional amounts of non-exempt activity that fall below certain thresholds, including $8 billion in security-based credit default swaps (CDS) or $400 million in non-CDS SBS over the previous 12 months (see Practice Note, US Derivatives Regulation: Swap Dealer and SBSD Registration Thresholds: De Minimis Exemptions from Designation as Swap Dealer and Security-based Swap Dealer).
Entities that meet the SBSD criteria are required to register as SBSDs regardless of whether or not they are located in the US (see Practice Note, US Derivatives Regulation: Cross-Border Application of Swaps Rules).