The Securities and Exchange Commission has adopted new Regulation SE under the Securities Exchange Act of 1934 to create a regime for the registration and regulation of security-based swap execution facilities (SBSEFs).
The new regulatory framework was required under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the over-the-counter derivatives market.
“Adopting Regulation SE fulfills Congress’s mandate and increases the transparency and integrity of the security-based swap market,” said SEC Chair Gary Gensler.
“In taking up these matters in 2021, we heard from many market participants suggesting that we should look to the Commodity Futures Trading Commission’s (CFTC) rules for swap execution facilities as our template,” he said.
“I believe aligning the SEC’s regime closely with the CFTC’s garners many of the same benefits – bringing together buyers and sellers with transparent, pre-trade pricing. That lowers risk in the marketplace and protects investors,” he added.
Based upon the current market for security-based swaps, the SEC expects that the entities that will register as security-based SEFs also are registered as SEFs with the CFTC.
Further, many participants in the security-based swap market also participate in the swaps markets that the CFTC oversees, Gensler said.
“Thus, by aligning our security-based SEFs rules with the CFTC’s rules for other SEFs, this adoption facilitates efficiencies for and minimize the new burdens on market participants through a framework with which they already comply,” he added.
The adoption addresses the Exchange Act’s trade execution requirement for security-based swaps and the cross-border application of that requirement, implements Section 765 of the Dodd-Frank Act to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade security-based swaps, and promotes consistency between Regulation SE and existing rules under the Exchange Act.
In adopting Regulation SE, the Commission has sought to harmonize as closely as practicable with parallel rules of the CFTC that govern swap execution facilities (SEFs) and swap execution generally.
The adopted rules will become effective 60 days following the date of publication in the Federal Register.
Any entity that meets the definition of SBSEF may file an application to register with the Commission on Form SBSEF at any time after the effective date, and would need to do so within 180 days of the effective date and have its application on Form SBSEF be complete within 240 days of the effective date in order to continue to operate as an SBSEF while its application is pending.
