SEC Provides Clearing Agency Registration Exemptions to Address Duplicative Regulation of Security-Based Swap Dealers and SBSEFs | Practical Law

SEC Provides Clearing Agency Registration Exemptions to Address Duplicative Regulation of Security-Based Swap Dealers and SBSEFs | Practical Law

The SEC adopted a final rule exempting certain activities of security-based swap execution facilities (SBSEFs) and security-based swap dealers (SBSDs) from triggering the requirement also to register with the SEC as a clearing agency. The final rule is designed to limit the potential for duplicative regulation within the SEC's SBS regulatory regime and to reduce inefficiencies during the registration period for SBS entities scheduled for November 2021.

SEC Provides Clearing Agency Registration Exemptions to Address Duplicative Regulation of Security-Based Swap Dealers and SBSEFs

by Practical Law Finance
Published on 22 Dec 2020 • USA (National/Federal)
The SEC adopted a final rule exempting certain activities of security-based swap execution facilities (SBSEFs) and security-based swap dealers (SBSDs) from triggering the requirement also to register with the SEC as a clearing agency. The final rule is designed to limit the potential for duplicative regulation within the SEC's SBS regulatory regime and to reduce inefficiencies during the registration period for SBS entities scheduled for November 2021.
On December 16, 2020, the SEC announced that it adopted a final rule exempting certain activities of security-based swap execution facilities (SBSEFs) and security-based swap dealers (SBSDs) from triggering the requirement also to register with the SEC as a clearing agency, in line with similar exemptions for broker-dealers and national securities exchanges (NSAs).
The final rule is designed to limit the potential for overlapping or duplicative regulation within the SEC's security-based swaps (SBS) regulatory regime and to reduce inefficiencies during the registration period for SBS entities scheduled for November 2021 (see US Derivatives Regulation: Swaps & Derivatives Calendar: November 1, 2021).
The final rule exempts from the definition of "clearing agency" in Section 3(a)(23) of the Securities Exchange Act of 1934 (Exchange Act) certain activities of:
  • Registered SBSDs.
  • Registered SBSEFs.
  • A person engaging in dealing activity in SBS that is eligible for an exception from registration as an SBSD because the quantity of dealing activity is de minimis.
New Rule 17Ad-24 provides that a registered SBSD, a registered SBSEF, or an entity engaging in dealing activity in SBS that is eligible for an exception under 17 CFR 240.3a71-2(a) (or subject to the period set out in 17 CFR 240.3a71-2(b)) is exempt from inclusion in the term “clearing agency,” as defined in Section 3(a)(23)(A) of the Exchange Act, where such entity would be deemed to be a clearing agency solely by reason of either:
  • Functions performed by such institution as part of customary dealing activities or providing facilities for comparison of data regarding the terms of settlement of securities transactions effected on such registered SBSEF.
  • Acting on behalf of a clearing agency or participant in such clearing agency in connection with the furnishing by the clearing agency of services to its participants or the use of services of the clearing agency by its participants.
In addition, the SEC has granted a temporary exemption from the registration requirement for SBSEFs, which is scheduled to expire on the earliest compliance date set out in any of the final rules regarding registration of SBSEFs. To the extent an entity relying on the temporary exemption from the registration requirement for SBSEFs also performs the activities of a registered SBSEF as described in Rule 17Ad-24, the SEC notes that it has provided a separate, temporary exemption from clearing agency registration for entities providing certain clearing services for SBS, including trade matching services.
The final rule will become effective on April 2, 2021.