Regulatory Practice Letter #14-11 | August 7, 201... | KPMG | US
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Regulatory Practice Letter #14-11 | August 7, 2014

Regulatory Practice Letter #14-11 | August 7, 201...

SEC Adopts Cross-Border Security- Based Swap Rules and Guidance


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Executive Summary

On June 25, 2014, the Securities and Exchange Commission (SEC or Commission) adopted rules and provided interpretive guidance to address the application of certain provisions of the Securities Exchange Act of 1934 (the Exchange Act) related to crossborder security-based swap activities that were added by Subtitle B of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).  The final rules address one aspect of a series of rules proposed by the SEC on May 23, 2013 (2013 SEC Cross-Border Proposal), by explaining when cross-border transactions must be counted in determining whether a market participant is required to register as a security-based swap dealer (SBSD) or a major security-based swap participant (MSBSP). The SEC states that it will address other aspects of its 2013 SEC Cross-Border Proposal, including trade reporting and public dissemination of trade details, mandatory clearing and trade execution, rules applicable to registered SBSDs and MSBSPs, and security-based swap market infrastructure, through future rulemaking.

The SEC also adopted a procedural rule for foreign security-based swap market participants to submit “substituted compliance” requests to the Commission.  Substituted compliance would permit market participants to satisfy certain Title VII security-based swap regulations by complying with another non-U.S. jurisdiction’s comparable regulatory framework.

Lastly, the final rules address the scope of the SEC’s cross-border anti-fraud law enforcement authority by clarifying that the Commission’s anti-fraud rules apply to conduct occurring (1) within the United States when it constitutes significant steps in furtherance of a violation or (2) outside of the United States when it has a foreseeable substantial effect within the  United States.

The rules will become effective 60 days after their publication in the Federal Register.  However, the SEC notes that both the rules addressing the application of the dealer and major participant definitions and the procedures for submitting substituted compliance requests to the SEC will not impose requirements on market participants until the SEC has completed its relevant substantive rulemakings.

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