SEC Proposes Actions to Improve Cross-Border Application of Security-Based Swap Requirements
June 6, 2019
On May 10, 2019, the Securities and Exchange Commission (the “Commission”) proposed rule amendments and interpretive guidance to improve the regulation of cross-border security-based swaps transactions and market participants (the “Proposal”). The Proposal seeks to address the cross-border application of certain security-based swap requirements under the Securities Exchange Act of 1934 (the “Exchange Act”) that were added by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Specifically, the Proposal has highlighted the following focus areas:
- The use of transactions that have been “arranged, negotiated, or executed” by personnel located in the United States as a trigger for regulating security-based swaps and market participants. The Commission has proposed interpretive guidance regarding the activities that constitute “arranging” or “negotiating” security-based swap transactions under the Exchange Act. This guidance would aid non-US security-based swap dealers as they determine which transactions must be counted against the de minimis registration thresholds.
- The requirement that non-U.S. security-based swap dealers and major security-based swap participants certify and provide an opinion of counsel that the Commission can access their books and records and conduct onsite inspections and examinations. The Commission has proposed an amendment to Exchange Act Rule 15Fb2-1 to provide additional time to submit the certification and opinion of counsel. In addition, the Commission has proposed guidance regarding various elements of the opinion of counsel.
- The cross-border application of statutory disqualification provisions. In order to complement the approach of the Commodity Futures Trading Commission, the Commission has proposed an amendment to Rule of Practice 194 that would exclude certain non-US persons from the statutory disqualification.
- The questionnaires or employment applications that security-based swap dealers and major security-based swap participants must maintain with regard to their foreign associated persons. The Commission has proposed exceptions to the questionnaire requirement, including for associated persons that would be excluded from the statutory disqualification provisions under the new proposal described above.
The proposed amendments to the Exchange Act and interpretive guidance would provide additional clarifications and alleviate certain burdens for those participating in cross-border swap transactions. Seward & Kissel LLP will follow the progress of this Proposal and will report on any significant developments.