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Dodd Frank : Title VII - Over-the-counter Derivatives : Security-based Swap Transactions

One-Year Later: Title VII of Dodd-Frank

June 10, 2011 02:00 PM


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US Securities and Exchange Commission

The Securities and Exchange Commission today said it is taking a series of actions in the coming weeks to clarify the requirements that will apply to security-based swap transactions as of July 16 – the effective date of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act – and to provide appropriate temporary relief.

Title VII is the portion of the Dodd-Frank Act that establishes a comprehensive framework for regulating over-the-counter derivatives.  In particular, it authorizes the SEC to regulate “security-based swaps” while also authorizing the CFTC to regulate other swaps.  The portion of Title VII referred to as Subsection B, which deals with the new regulatory regime for security-based swaps, will take effect on July 16 (360 days after the date of the Dodd-Frank Act’s enactment).

The Commission will:

  1. Provide guidance regarding which provisions of Subtitle B of Title VII will become operable as of July 16, and, where appropriate, provide temporary relief from several of these provisions.

  2. Provide guidance regarding – and where appropriate, temporary relief from – the various pre-Dodd-Frank provisions of the Exchange Act that would otherwise apply to security-based swaps on July 16.  Under Dodd-Frank, security-based swaps would be included in the definition of “security” under the Exchange Act.  While such swaps will be subject to provisions addressing fraud and manipulation, the Commission intends to provide temporary relief from certain other provisions of the Exchange Act so that the industry will have time to seek, and the Commission can consider, what if any further guidance or action is required.

  3. Take other actions such as extending existing temporary rules under the Securities Act, the Exchange Act, and the Trust Indenture Act, and extending existing temporary relief from exchange registration under the Exchange Act.  This will help to continue facilitating the clearing of certain credit default swaps by clearing agencies functioning as central counterparties.

The Dodd-Frank Act contains more than 90 provisions overall that require SEC rulemaking, as well as dozens of additional provisions that give the SEC discretionary rulemaking authority.  Of the mandatory rulemaking provisions, the SEC already has proposed or adopted rules for about two-thirds of them.  In addition to writing individual rules, the Commission has been focusing more generally on how Title VII and the rules thereunder will be implemented.  The SEC and CFTC staffs held a joint public roundtable in April, and Commissioners and staff have had extensive discussions with market participants on the appropriate sequence for implementing the security-based swap regulations. 

After proposing all of the key rules under Title VII, the SEC intends to consider publishing a detailed implementation plan in order to enable the Commission to move forward expeditiously with the roll-out of the new securities-based swap requirements in the most efficient manner, while minimizing unnecessary disruption and costs to the markets.

The SEC also announced today proposed rules that would exempt transactions by clearing agencies in security-based swaps that they issue from all provisions of the Securities Act, other than the Section 17(a) anti-fraud provisions, as well as exempt these security-based swaps from Exchange Act registration requirements and from the provisions of the Trust Indenture Act, provided certain conditions are met.










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