Federal Register: Registration and Regulation of Security-Based Swap Execution Facilities

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Dodd-Frank Timeline, Registration and Regulation of Security-Based Swap Execution Facilities, SEC
Proposal Date Comment Deadline Reopened Comment Period Deadline
February 28, 2011 April 4, 2011 July 22, 2013

On February 2, 2011, the SEC held an open meeting concerning swap execution facilities regulation under the Dodd-Frank Act. Among the topics at this meeting was the definition of security-based swap execution facilities (SEFs), as well as SEF registration requirements, duties and core principles. The February 2 meeting adjourned with a unanimous vote in the proposal's favor.[1] Proposed rules were added to the Federal Register on February 28, 2011.

Proposed Rules

  • The definition of “security-based SEFs” in Dodd-Frank: "A trading system or platform in which multiple participants have the ability to execute or trade security-based swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce. . . ."
  • Registration requirements for security-based SEFs:
  1. "File with the Commission proposed changes to its rules as well as the security-based swaps that it intends to trade.
  2. Have rules to ensure compliance with the core principles outlined in the Dodd-Frank Act.
  3. Have rules regarding access to, and the financial integrity of transactions on, the security-based SEF.
  4. Put in place rules governing the procedures for trading on the security-based SEF.
  5. Ensure the integrity of security-based SEF systems by having policies and procedures reasonably designed to ensure that its systems have adequate levels of capacity, resiliency, and security.
  6. Make and keep certain books and records.
  7. Have adequate resources to operate as a security-based SEF."
  • 14 core principles for security-based SEFs:
  1. "Comply with the core principles and any requirement the Commission may impose.
  2. Establish and enforce rules governing, among other things, the terms and conditions of security-based swaps traded on their markets; any limitation on access to the facility; trading, trade processing and participation; and the operation of the facility.
  3. Permit trading only in security-based swaps that are not readily susceptible to manipulation.
  4. Establish rules for entering, executing and processing trades and to monitor trading to prevent manipulation, price distortion, and disruptions through surveillance, including real-time trade monitoring and trade reconstructions.
  5. Have systems to capture information necessary to carry out its regulatory responsibilities and share the collected information with the Commission upon request.
  6. Have rules and procedures to ensure the financial integrity of security-based swaps entered on or through the facility, including the clearance and settlement of security-based swaps.
  7. Have rules allowing it to exercise emergency authority, in consultation with the Commission, including the authority to suspend or curtail trading or liquidate or transfer open positions in any security-based swap.
  8. Make public post-trade information (including price, trading volume, and other trading data) in a timely manner to the extent prescribed by the Commission.
  9. Maintain records of activity relating to the facility's business, including a complete audit, for a period of five years and to report such information to the Commission, upon request.
  10. Not take any action that imposes any material anticompetitive burden on trading or clearing.
  11. Have rules designed to minimize and resolve conflicts of interest.
  12. Have sufficient financial, operational, and managerial resources to conduct its operations and fulfill its regulatory responsibilities.
  13. Establish a risk analysis and oversight program to identify and minimize sources of operational risk and to establish emergency procedures, backup facilities, and a disaster recovery plan, and to maintain such efforts, including through periodic tests of such resources.
  14. Have a chief compliance officer that performs certain duties relating to the oversight and compliance monitoring of the security-based SEF and that submits annual compliance and financial reports to the Commission."
  • The process for security-based SEFs to file rule changes and new products with the SEC.
  • Exemptions for security-based SEFs from the definition of “exchange” and from most broker regulation.



References

  1. SEC Announcements - SEC Proposes Rules for Security-Based Swap Execution Facilities. SEC. Retrieved on February 2, 2011.

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