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SEC Proposes Regulatory Regime for Security-Based Swap Execution Facilities (SBSEFs) and Security-Based Swap Trade Execution
Practical Law Legal Update w-035-1702 (Approx. 4 pages)
SEC Proposes Regulatory Regime for Security-Based Swap Execution Facilities (SBSEFs) and Security-Based Swap Trade Execution
by Practical Law Finance
| Published on 08 Apr 2022 • USA (National/Federal) |
The SEC has proposed new rules for the registration and regulation of security-based swap execution facilities (SBSEFs), as well as other rules relating to security-based swap (SBS) execution. The proposal is a key step in completing one of the few remaining pieces of outstanding Dodd-Frank swaps regulation.
On April 6, 2022, the SEC proposed Regulation SE (Regulation SE), including related forms, under Section 3D of the Securities Exchange Act of 1934 (Exchange Act), implementing Section 765 of the Dodd-Frank Act to:
- Create a regime for the registration and regulation of security-based swap execution facilities (SBSEFs).
- Address certain other issues relating to security-based swap (SBS) execution generally.
The proposal is a key step in completing one of the few remaining pieces of outstanding Dodd-Frank swaps regulation. The SEC has also issued a fact sheet on the proposed SEC regulatory regime for SBSEFs under Regulation SE. The proposed rules would:
- Implement the Exchange Act's SBS trade-execution requirement.
- Address the cross-border application of the Exchange Act's trading venue registration requirements and the cross-border application of the SBS trade execution requirement.
The SEC is also proposing under Regulation SE:
- To amend existing SEC Rule 3a1-1 (17 C.F.R. § 240.3a1-1) under the Exchange Act to exempt from the definition of "exchange" certain registered clearing agencies as well as registered SBSEFs that provide a marketplace only for SBS.
- A new rule under Regulation SE that affirms that an SBSEF would be a broker under the Exchange Act, but exempting registered SBSEFs from certain broker requirements.
- Certain new rules and amendments to the SEC's Rules of Practice for appeals of SBSEF actions (17 C.F.R. Part 201) to allow persons who are aggrieved by certain actions by an SBSEF to apply for review by the SEC.
In developing the proposed new rules, the SEC stated that it seeks to harmonize as closely as practicable with parallel CFTC rules that govern swap execution facilities (SEFs) and CFTC swap trade execution generally. The SEC notes that it expects to promote consistency between proposed Regulation SE and existing rules under the Exchange Act.
The SEC notes that it previously proposed rules regarding SBSEFs in three separate releases between 2010 and 2013. However, the SEC observes that given the length of time that has passed since those proposed rules were issued and the significant market changes that have taken place in the interim, the SEC is withdrawing all previously proposed rules, rule amendments, and interpretations regarding SBSEFs effective as of the publication date of Regulation SE in the Federal Register. As a result, the following previously proposed SEC rules and rule amendments will be withdrawn:
- All rules and rule amendments proposed in Exchange Act Release No. 63825 (76 Fed. Reg. 10948 (Feb. 28, 2011)) (see Legal Update, SEC Proposes Dodd-Frank Rules for Security-based Swap Execution Facilities).
- The proposed rules pertaining to SBSEFs and SBS exchanges in Exchange Act Release No. 63107 (75 Fed. Reg. 63107 (Oct. 14, 2010)) (see Legal Update, SEC Proposes Rules on Security-based Swap Facility Ownership and Governance Under Dodd-Frank).
- The proposed rules and interpretations pertaining to the Exchange Act's trading venue registration requirements and the trade execution requirement for SBS in Exchange Act Release No. 69490 (78 Fed. Reg. 30968 (May 23, 2013)) (see Legal Update, SEC Reopens Comment Periods for Dodd-Frank Security-based Swaps Rules).
Public comment on the proposal is due on June 10, 2022.