On April 29th, the SEC proposed a rule governing non-US dealers’ security-based swap activity that are “arranged, negotiated or executed” by personnel or agents located in the US (i.e., transactions with a “US nexus”). This important issue was not addressed in the cross-border rule that the SEC finalized last year and represents the first real indication of the SEC’s approach. Meanwhile, the CFTC’s version laid out in its controversial Staff Advisory of November 2013 remains subject to no-action relief.
The SEC has so far demonstrated a more measured approach to swaps rulemaking as compared to the CFTC by taking into consideration a range of factors including the specifics of the security-based swaps market, industry commentary, and the impact of related CFTC rulemaking. With this proposal the SEC diverges from the CFTC by limiting the types of non-US dealer activities that would be subject to Dodd-Frank obligations and by limiting the obligations themselves. There is optimism that the CFTC will align with the SEC, given recent statements by CFTC commissioners regarding their intent to do so.
This First take elaborates on these key points.