SEC Final Rule: Cross-Border Security-Based Swap Rules Regarding Activity in the United States

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Gavel.png FINAL RULE: Approved February 10, 2016. Published in the Federal Register February 19, 2016. Effective date April 19, 2016.
Dodd-Frank Timeline, Cross-Border Application of Swap Entity Provisions, SEC
Final Rule Posted Effective Date Final Rule - Non-U.S. Persons
July 9, 2014 September 8, 2014 February 10, 2016

On February 10, 2016, the SEC approved a final rulemaking that require a non-U.S. company that uses personnel located in a U.S. branch or office to arrange, negotiate, or execute a security-based swap transaction in connection with its dealing activity to include that transaction in determining whether it is required to register as a security-based swap dealer. The rule was published in the Federal Register February 19, 2016 and becomes effective April 19, 2016.<ref>SEC Adopts Cross-Border Security-Based Swap Rules Regarding Activity in the U.S.. SEC. Retrieved on February 12, 2016.</ref>

The final rules would not address other elements of the U.S. activity proposing release, including the application of business conduct standards or Regulation SBSR to certain transactions, and clearing and trade execution requirements more generally. These requirements will be addressed in subsequent releases.


Among the provisions of Title VII of the Dodd-Frank Act is a requirement that swaps reforms shall not apply to activities outside the United States unless those activities have “a direct and significant connection with activities in, or effect on, commerce of the United States.” The SEC is tasked with developing a framework for oversight of security-based swaps, and to adapt the SEC regulations to include such oversight.

The concern is that swap trading by foreign affiliates of large financial entities pose a systemic risk to the U.S., and thus should be under commission jurisdiction. The proposed rule includes many questions for discussion with market participants regarding the structure of cross-border jurisdiction.

On May 1, 2013, the SEC approved a proposed rulemaking and a request for comment regarding cross-border application of security-based swaps rules related to the Dodd-Frank Act. The rule appeared in the Federal Register on May 23, 2013, and the deadline for public comment was August 21, 2013. Comments can be found HERE. A final rule and guidance on applying swap entity definitions were approved by the SEC on June 24, 2014. The rule appeared in the Federal Register on July 8, 2014 (with a correction posted August 12), and its effective date was September 8, 2014.

On April 29th, 2015 The SEC proposed a new rule on Cross-Border Security-Based Swaps. The proposed rule would require non-US firms using U.S. personnel in arranging, negotiating, or executing security based swaps to register as a security-based swap dealer. <ref>SEC re-proposes some key rules for swap dealers on U.S. soil. Reuters. Retrieved on April 30th, 2015.</ref> The February 2016 rulemaking finalizes this proposal.

Summary of the Final Rule[edit]

The SEC’s final rules are largely unchanged from its 2015 U.S. activity proposing release. They focus solely on the location of personnel arranging, negotiating, or executing a security-based swap transaction on behalf of the dealer, whether the personnel are employed by the dealer or by the dealer’s agent.

The final rules would require a non-U.S. person using personnel located in a U.S. branch or office to arrange, negotiate, or execute a transaction to include such transaction in its de minimis threshold calculations even if the transaction was executed anonymously and cleared. The final rules would also except those international organizations that are excluded from the definition of U.S. person in Exchange Act rule 3a71-3(a)(4)(iii) from the requirement that non-U.S. persons include in their dealer de minimis threshold calculations transactions that they arrange, negotiate, or execute using personnel located in a U.S. branch or office.

Related Document: Final Rule as Sent to the Federal Register[edit]


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