The SEC provided the “who” but not much else in its final rule regarding cross-border security-based swap activities (“final rule”), released at the SEC’s June 25, 2014 open meeting. Although most firms have already implemented a significant portion of the CFTC’s swaps regulatory regime (which governs well over 90% of the market), the SEC’s oversight of security-based swaps means that the SEC’s cross-border framework and its outstanding substantive rulemakings (e.g., clearing, reporting, etc.) have the potential to create rules that conflict with the CFTC’s approach. The impact that the SEC’s regulatory framework will have on the market remains uncertain, but the final rule at least begins to lay out the SEC’s cross-border position.
What the SEC’s final rule does
Focuses only on cross-border issues, and not comprehensively.
Defines US person with less extraterritorial reach than the CFTC’s 2013 final cross-border guidance (“CFTC guidance”).
Veers from the SEC’s 2013 proposed rule’s application of the de minimis threshold, to more closely align with the CFTC guidance.
Adds transparency to substituted compliance determinations.
Conducted a cost-benefit analysis on the economic impact of the regulation, which many complained that the CFTC did not.
What the final rule does NOT do
Unsurprisingly, sheds little light on the question of whether the CFTC’s controversial advisory seeking to apply the US regulatory regime to two non-US counterparties would stand.
Does not include “implicit” guarantees when defining foreign affiliates guaranteed by a US entity, thus establishing less extraterritorial reach than the CFTC guidance.
Does not finalize its approach for making substituted compliance determinations.
Confusion regarding the timing of future rulemakings.