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SEC Adopts Final Cross-Border Security-Based Swap (SBS) Amendments and Guidance; SBS Registration and Compliance Requirements Triggered
Practical Law Legal Update w-023-4565 (Approx. 6 pages)
SEC Adopts Final Cross-Border Security-Based Swap (SBS) Amendments and Guidance; SBS Registration and Compliance Requirements Triggered
by Practical Law Finance
| Published on 02 Jan 2020 • USA (National/Federal) |
The SEC adopted a package of rule amendments and guidance on the cross-border application of certain security-based swap (SBS) requirements under the Exchange Act, triggering compliance dates for entities to register with the SEC as security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs), as well as the implementation period for previously adopted SEC rules on margin, capital, segregation, recordkeeping, reporting, and business conduct requirements for SBS.
On December 18, 2019, the SEC adopted a package of rule amendments and guidance (together, the SBS cross-border rulemaking) on the cross-border application of certain security-based swap (SBS) requirements under the Exchange Act, which were added pursuant to Title VII of the Dodd-Frank Act.
The SBS cross-border rulemaking addresses four key areas with respect to SBS:
- The use of transactions that have been arranged, negotiated, or executed (ANE) by personnel located in the US (ANE SBS transactions) as a trigger for regulating SBS and market participants (see Practice Note, US Derivatives Regulation: Cross-Border Application of Swaps Rules: Counting SBS ANE Transactions Toward de Minimis Calculations).
- The requirement that non-US-resident security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs) certify and provide an opinion of counsel that the SEC can access their books and records and conduct onsite inspections and examinations (see Practice Note, US Derivatives Regulation: Cross-Border Application of Swaps Rules: Conditional Registration).
- The cross-border application of statutory SBS disqualification provisions for associated persons (APs) (see Practice Note, US Derivatives Regulation: Cross-Border Application of Swaps Rules: Rules for Associated Persons (APs)). ).
- The questionnaires and employment applications that SBSDs and MSBSPs must maintain with regard to their foreign APs (see Practice Note, US Derivatives Regulation: Cross-Border Application of Swaps Rules: Rules for Associated Persons (APs)).
The SBS cross-border rulemaking was proposed in May 2019 and is being adopted with certain changes and modifications (see Legal Update, SEC Proposes Rule Amendments and Guidance to Improve Cross-Border Application of Security-Based Swap (SBS) Requirements). The SEC notes that the rulemaking reflects consultation with the CFTC, as many market participants that are subject to regulation the SEC as SBSDs are also subject to regulation by the CFTC as swap dealers (SDs).
Notably, the SBS cross-border rulemaking is the final piece of the SEC's SBS regulatory regime and therefore triggers compliance dates for SBSDs and MSBSPs (collectively, SBS entities and each, an SBS entity) to register with the SEC, as well as the implementation period for previously adopted SEC rules on SBS margin, capital, segregation, recordkeeping, reporting, and business conduct requirements for SBS (see Compliance Dates).
The SEC published a press release and fact sheet in connection with the rulemaking.
For details on the SBS cross-border rulemaking, see Practice Note, US Derivatives Regulation: Cross-Border Application of Swaps Rules: 2019 SBS Cross-Border Rulemaking.
Compliance Dates
The effective date of the SBS cross-border rulemaking is April 6, 2020.
Notably, the effective date of the SBS cross-border rulemaking triggers the compliance dates for:
- Registration of SBS entities, which is 18 months after the effective date of the SBS cross-border rulemaking (the registration compliance date). For details on SBSD and MSBSP registration requirements, see Practice Note, US Derivatives Regulation: Requirements for Swap Dealers and MSPs Checklist: Requirements for Security-Based Swap Dealers and MSBSPs and Legal Update, SEC Adopts Registration Rules for Security-based Swap Dealers and Major Security-based Swap Participants.
- The amendments to Rule 3a71-3 (see Counting SBS ANE Transactions Toward de Minimis Calculations), which is two months prior to the registration compliance date.
- The amendments to Rules 18a-5 and 15Fb2-1 (see Questionnaires and Employment Applications for APs and Conditional Registration), which is the same as the registration compliance date (18 months after the effective date of the SBS cross-border rulemaking).
- The amendments to Exchange Act Rule 0-13 and Rule of Practice 194 (see Counting SBS ANE Transactions Toward de Minimis Calculations and Cross-Border Application of Statutory AP Disqualification Provision), which is the same as the effective date of the SBS cross-border rulemaking.
Compliance with the following rules will be required beginning on the registration compliance date (18 months after the effective date of the SBS cross-border rulemaking):
- SBS recordkeeping, reporting, and notification requirements (see Practice Note, US Derivatives Regulation: SEC Recordkeeping, Reporting, and Notification Requirements for Security-Based Swaps).
- SBS capital, margin, and margin segregation requirements (see Practice Note, US Derivatives Regulation: SEC Capital, Margin, and Segregation Requirements for Security-Based Swaps).
- SBSD and MSBSP business conduct and chief compliance officer (CCO) requirements (see Practice Note, US Derivatives Regulation: SEC Security-Based Swap Business Conduct Standards).
- SBSD and MSBSP trade acknowledgement and verification requirements (see Legal Update, SEC Adopts Final Security-Based Swap Trade Acknowledgment and Verification Rules).