On February 11, 2015, the Securities and Exchange Commission (SEC) released two final rules toward establishing a reporting and public disclosure framework for security-based swap (SBS) transaction data. The SEC’s Commissioners had voted last month to approve the rules, 3 to 2. These rules are the SEC’s first substantive SBS requirements since the SEC began laying out its cross-border position through final rules in June 2014. Chair White has consistently stressed the need to complete substantive SBS requirements and now appears willing to do so even when the SEC Commissioners are divided.
The SEC rules diverge from existing Commodity Futures Trading Commission (CFTC) requirements in some key ways. These divergences will create technical complexity for dealers who have built systems and processes to meet already live CFTC regulations.
- The SEC’s final rules leave important items unaddressed.
- Market participants will seek greater clarity from the SEC in order to meet the operational burden of compliance.
- The broad scope of the SEC’s “Unique Identifier Codes” (UICs) will be problematic for dealers.
- The reporting timeframe of 24 hours grants parties a longer period to submit trade data than does the CFTC.
- The SEC imposes stricter and more formal obligations on the SBSDR to define and police reporting data standards.
- Other differences between the SEC and CFTC rules will increase operational risk in the market.
- The SEC’s reporting requirements apply cross-border to a larger extent than do the CFTC’s.
- Future divergences from the CFTC’s existing rules may cause considerable operational and compliance costs, but that does not mean the SEC will conform to the CFTC.
- Following the request last year from the CFTC for comment on its existing reporting rules, the industry expects the CFTC to rewrite the regulations later this year.
- The SEC’s adoption of the final rules over the dissent of both Republican Commissioners potentially implies stricter future rulemakings.
This First take elaborates on these key points.