Federal Register: Registration and Regulation of Security-Based Swap Execution Facilities
|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.<ref>SEC Announcements - SEC Proposes Rules for Security-Based Swap Execution Facilities. SEC. Retrieved on February 2, 2011.</ref> Proposed rules were added to the Federal Register on February 28, 2011.
- 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:
- "File with the Commission proposed changes to its rules as well as the security-based swaps that it intends to trade.
- Have rules to ensure compliance with the core principles outlined in the Dodd-Frank Act.
- Have rules regarding access to, and the financial integrity of transactions on, the security-based SEF.
- Put in place rules governing the procedures for trading on the security-based SEF.
- 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.
- Make and keep certain books and records.
- Have adequate resources to operate as a security-based SEF."
- 14 core principles for security-based SEFs:
- "Comply with the core principles and any requirement the Commission may impose.
- 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.
- Permit trading only in security-based swaps that are not readily susceptible to manipulation.
- 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.
- Have systems to capture information necessary to carry out its regulatory responsibilities and share the collected information with the Commission upon request.
- 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.
- 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.
- Make public post-trade information (including price, trading volume, and other trading data) in a timely manner to the extent prescribed by the Commission.
- 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.
- Not take any action that imposes any material anticompetitive burden on trading or clearing.
- Have rules designed to minimize and resolve conflicts of interest.
- Have sufficient financial, operational, and managerial resources to conduct its operations and fulfill its regulatory responsibilities.
- 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.
- 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.