On August 5th, the Securities and Exchange Commission (SEC) issued both a final and proposed rule toward establishing the agency’s supervisory framework for security-based swap dealers (SBSD) and major security-based swap participants.
The final rule, adopted unanimously, lays out the requirements for SBSD registration with the SEC, including that a senior officer certify that the SBSD has implemented reasonably designed policies and procedures to prevent violations of federal securities law. The proposed rule, adopted in a 3-2 vote, establishes the process for obtaining a waiver from “statutory disqualification” (i.e., disqualification from the SBS market due to legal violations) for individuals and entities associated with the SBSD.
- SBSD registration will not be required until 6 months after the SEC’s outstanding derivatives rulemakings are finalized.
- The SEC did not provide clarity as to whether compliance with its derivatives rules will be required after, or simultaneous with, registration.
- The SEC places a clearer responsibility than the CFTC did for a senior officer to certify that policies and procedures are reasonably designed.
- Dealers that are already registered with the CFTC will be able to use short-forms for SBSD registration.
- The SEC, unlike the CFTC, asserts that supervisors of middle office personnel are subject to “statutory disqualification.”
- The SEC also, unlike the CFTC, subjects entities to “statutory disqualification,” but proposes a process for them to obtain waivers.
- The SEC is under no obligation to decide whether or not to grant a waiver.
- The proposal will apply disqualifications and waivers from the CFTC, NFA, and self-regulatory organizations to SBSDs.
- The proposal is unusually controversial.
- Beyond the SEC’s upcoming final derivatives rules, additional regulatory change will complicate dealers’ implementation efforts.
This First take elaborates on these key points.