SEC Final Rule: Process for Submissions for Review of Security-Based Swaps for Mandatory Clearing

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Gavel.png FINAL RULE: Issued June 28, 2012.
Dodd-Frank Timeline, Process for Review of Swaps for Mandatory Clearing; Technical Amendments, SEC
Final Rule Issue Effective Date Compliance Date
June 28, 2012 August 13, 2012 December 10, 2012

On June 28, 2012, the Securities and Exchange Commission issued a final rulemaking that establishes procedures for its review of certain clearing agency actions. The rules create a framework for determining which security-based swaps will be subject to the mandatory clearing requirement under Title VII of the Dodd-Frank Act, which mandated that swaps and security-based swaps "eligible for clearing" be cleared through a DCO.

Additionally, the final rule includes requirements that clearing agencies designated as "systemically important" submit changes in rules,operations, or procedures that could materially alter the nature or level of risk. [1]

The final rules become effective 30 days after appearing in the Federal Register, except for the amendments to Form 19b-4 and the requirement to submit security-based swap submissions and advance notices electronically using the Electronic Form 19b-4 Filing System and Form 19b-4. These amendments will not become effective until December 10, 2012.

Background

On December 15, 2010, the SEC held an open meeting concerning the process for submissions for review of security-based swaps for mandatory clearing and notice filing requirements for clearing agencies under the Dodd-Frank Act. Among the topics at this meeting were the procedure for a stay of the mandatory clearing requirement, and the submission to a clearing agency of a security-based swap for clearing. Proposed rules were added to the Federal Register on December 30, 2010. To view the proposed rule, click HERE.

Summary of the Rule

Under the final rule, a clearing agency will be required to file information with the SEC regarding any security-based swap - or any group, category, type, or class of security-based swaps - that a clearing agency plans to accept for clearing. These "security-based swap submissions" will be filed electronically with the SEC using the existing Electronic Form 19b-4 Filing System and Form 19b-4. The rule also describes the information that must accompany each submission so that the SEC will be able to determine whether the security-based swap should be subject to mandatory clearing. In addition, the rule specifies how the clearing agency must notify its members about the submissions it makes, and requires clearing agencies to post their security-based swap submissions on their public websites within two business days.

The final rules also establish the procedure by which the SEC may stay the mandatory clearing requirement at the request of a counterparty to the security-based swap or on the SEC's own initiative.

Regarding "systemically important" derivatives clearing organizations ("SIDCOs"), such clearing agencies must submit advanced notices of any rule change that would:

  • affect the risk management functions performed by the clearing agency that are related to systemic risk;
  • affect the clearing agency's ability to continue to perform its core clearance and settlement functions;
  • materially affect participant and product eligibility, risk management, daily or intraday settlement procedures, default procedures, system safeguards, governance, or financial resources of the designated clearing agency.

For more information on systemic risk and the Dodd-Frank Act, visit the page on the Financial Stability Oversight Council.


Related Document: Final Rule as it Appeared in the Federal Register

References

  1. SEC Adopts New Procedures for Reviewing Clearing Submissions Under Dodd-Frank Act. SEC. Retrieved on June 29, 2012.

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