SEC Open Meeting, April 27, 2011

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Dodd-Frank Timeline, Further Definitions of Swaps, CFTC/SEC
Proposal Date Comment Deadline Final Rule Issue
May 23, 2011 July 22, 2011 Late 2011/Early 2012
Dodd-Frank Timeline, Removal of Credit Ratings References Under Securities Exchange Act of 1934, SEC
Proposal Date Comment Deadline Final Rule Issue
May 6, 2011 July 5, 2011 December 27, 2013

The U.S. Securities and Exchange Commission (SEC) public meeting focused on the issuance of proposed rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act concerning the further definition of "swap," "security-based swap" and "security-based swap agreement" with regard to "mixed swaps" and in books and records related to "security-based swap agreements." This is one of several proposals on the topic of swaps definitions and is also a joint proposal with the Commodity Futures Trading Commission (CFTC).

At the meeting, the Commission also focused on the SEC-specific proposal under Dodd-Frank concerning the removal of credit ratings references from regulation under the Securities Exchange Act of 1934, another in a series of proposals on the topic.

Archived webcast:

Meeting Summary[edit]

Topics of Discussion

  • Products that are not "swaps" or "security-based swaps;"
  • The exclusion of consumer transactions and commercial transactions from the definition of "swap" or "security-based swap;"
  • Transactions that are "swaps" or "security-based swaps;"
  • Swaps and security based swaps based on security indexes;
  • Mixed swaps;
  • Security-based swap agreements;
  • The interpretation of the characterization of a swaps product;
  • Removing references to credit ratings in the SEC's net capital rule for broker-dealers; and
  • Removing references to credit ratings in the definition of "major market foreign currency."

Related Documents[edit]

Further Definition of "Swap," "Security-Based Swap," and "Security-Based Swap Agreement"; Mixed Swaps; Security-Based Swap Agreement Recordkeeping

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Removal of Certain References to Credit Ratings Under the Securities Exchange Act of 1934

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Commissioner Luis A. Aguilar, whose statements include:

  • An explanation of the goals set out by the swaps definition proposal.
  • A request for comment on the following question: "Does the proposed treatment of index CDS whereby a payment is contemplated based on the default of a particular entity in the index rather than solely on the value of the index adequately address the federal regulatory interests under the federal securities laws and the Commodity Exchange Act?"
  • Concerns as to what the SEC should do when there exists no appropriate substitute for credit ratings references.
  • Concerns involving the additional costs and burdens imposed on the industry and the Commission by the credit ratings proposal.
  • The following questions:
  1. "What substitute for the use of NRSRO ratings in the net capital rule would provide an objective standard?; and
  2. How does the Commission make a finding that removing the existing credit rating references is in the public interest if there is no appropriate substitute?"

Chairman Mary L. Schapiro; whose statements include:

  • "The definitions we propose today balance several policy and legal issues in a way I believe is practical, takes into account the specific nature of derivatives contracts, and is consistent with existing securities regulations. The proposal before us seeks to provide guidance, in rules and interpretations, by using clear and objective criteria that should clarify whether a particular instrument is a swap regulated by the CFTC, a security-based swap regulated by the SEC, or a mixed swap regulated by both agencies."
  • "The most significant proposed change in [the credit ratings] area would preclude firms from looking solely to ratings when calculating capital charges for commercial paper, nonconvertible debt, and preferred stock under the Commission’s net capital rule. Instead, each firm with proprietary positions in these instruments would need to look at a variety of factors, and they would need to have and document procedures for doing so."

Commissioner Kathleen L. Casey, whose statements include:

  • Request for comment on whether the Commission has indeed selected appropriate and working substitutes for references to credit ratings.
  • Request for comment concerning the clarity of the proposed definitions set out by the Commission.

Commissioner Elisse B. Walter, whose statements include:

  • Support for the credit ratings proposal.
  • A note that the removal of references to credit ratings should not be interpreted as the NRSRO system being unhelpful or of poor use to investors.

Commissioner Troy A. Paredes, whose statements include:

  • Support for the credit ratings proposal, but concerns regarding the "practical impacts" of the recommendation, specifically the potential consequences of the net capital rule provision.



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