• The SEC Releases Regulations on Reporting and Dissemination of Security-Based Swaps Data
  • April 10, 2015 | Authors: Brian Barrett; James M. Cain; Daphne G. Frydman; David T. McIndoe; Mark D. Sherrill
  • Law Firms: Sutherland Asbill & Brennan LLP - New York Office ; Sutherland Asbill & Brennan LLP - Washington Office
  • On February 11, 2015, the Securities and Exchange Commission (SEC) published final regulations that will require Swap Data Repositories (SDRs)1 to register with the SEC (Regulation SDR) and prescribe reporting and public dissemination requirements for security-based swaps (SBS) transaction data (Regulation SBSR). On the same day, the SEC also proposed a new regulation (Proposed Regulation SBSR) that will amend certain portions of Regulation SBSR and provides guidance with respect to the reporting and public dissemination of SBS transaction data. Proposed Regulation SBSR also includes a phased-in compliance schedule for certain requirements under Regulation SBSR.

    These three regulations are intended to implement the reporting mandate of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) for SBS. These regulations were initially proposed in 2010. The new regulations are intended to establish robust and well-governed, security-based SDRs and a new reporting and public dissemination regime for SBS transaction data.

    Sutherland is tracking the status of SEC as well as CFTC regulatory proposals at http://www.regulatoryreformtaskforce.com/.


    These three regulations apply to SBS transactions,2 which are swaps that are based on: (1) a narrow-based index3 of securities, including any interest therein or on the value thereof; (2) a single security or loan, including any interest therein or on the value thereof; or (3) the occurrence or nonoccurrence of an event relating to a single issuer or the issuers of securities in a narrow-based security index, if the event directly affects the financial statements, condition or obligations of the issuer.4

    The Final Regulations

    1. Regulation SDR: Regulation SDR establishes a comprehensive regulatory framework for SDRs:
    • SDRs are required to register with the SEC and are subject to SEC oversight through inspections and examinations.
    • SDRs are required to establish internal structures that ensure effective internal controls and provide: (1) a fair representation of market participants; (2) policies and procedures to prevent conflicts of interest; and (3) direct electronic access for the SEC.
    • SDRs are required to designate a Chief Compliance Officer (CCO). Regulation SDR prescribes the CCO’s duties and responsibilities, which include reviewing the SDR’s compliance with the Securities Exchange Act and the rules and regulations related to SBS, and preparing an annual compliance report to be filed with the SEC.
    2. Regulation SBSR: Regulation SBSR promotes transparency through the reporting and public dissemination of SBS transaction data:
    • SBS data is required to be reported to an SDR within 24 hours of execution by swap market participants.
    • SDRs are required to publicly disseminate a report of any transaction they receive immediately upon receipt and to establish and maintain policies and procedures to ensure complete, accurate, and transparent reporting and dissemination of SBS data.
    • Regulation SBSR contains provisions that address the application of regulatory reporting and public dissemination requirements to cross-border SBS activity, as well as provisions for permitting market participants to satisfy requirements through substituted compliance. Specifically, Rule 908(c) establishes a framework where the SEC may issue a substituted compliance determination with respect to a foreign jurisdiction’s regulatory reporting and public dissemination requirements for an SBS if the SEC finds that the foreign regulatory system is comparable to the provisions of Regulation SBSR.
    3. Proposed Regulation SBSR: Proposed Regulation SBSR would amend certain aspects of Regulation SBSR to address reporting for platforms, clearing agencies, bunched orders5 and prime brokerage transactions:6
    • The proposed regulation would require a platform (i.e., national security exchange or SBS execution facility that is registered with the SEC or exempt from registration) to report to a registered security-based SDR a SBS executed on such platform that will be submitted to clearing.
    • The proposed regulation would require a registered clearing agency to report to a registered SDR any SBS to which it is a counterparty.
    • The proposed regulation would prohibit registered SDRs from charging fees for or imposing usage restrictions on the users of the SBS transaction data that they are required to publicly disseminate.
    • The proposed regulation would include a new compliance schedule for the portions of Regulation SBSR for which the SEC has not specified a compliance date.
    Compliance Dates and Public Comment Period

    The effective date of Regulation SDR is May 18, 2015. The compliance date is March 18, 2016.

    The effective date of Regulation SBSR is May 18, 2015. The compliance date for Rules 900, 907, and 909 of Regulation SBSR is also May 18, 2015. The compliance date for Rules 901, 902, 903, 904, 905, 906, and 908 will be set forth in Proposed Regulation SBSR.

    For Proposed Regulation SBSR, comments should be received on or before May 4, 2015.

    1 SDRs are entities created by the Dodd-Frank Act for the purpose of collecting and maintaining accurate transaction data. They are intended to afford the relevant authorities access to data from secure, central locations, and thereby allow regulators to monitor for potential market abuse and risks to the financial market.

    2 The Dodd-Frank Act gave the Commodity Futures Trading Commission (CFTC) regulatory authority over swaps, whereas the SEC has regulatory authority specifically over SBS. Further Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘Security-Based Swap Agreement’’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, 77 Fed. Reg. 48,207, 48,210 (Aug. 13, 2012).

    3 A narrow-based security index means an index that meets any of the four criteria: (1) it has nine or fewer component securities; (2) a component security comprises more than 30% of the index’s weighting; (3) the five highest weighted component securities in the aggregate comprise more than 60% of the index’s weighting; or (4) the lowest weighted component securities comprise, in the aggregate, 25% of the index’s weighting have an aggregate dollar value of average daily trading volume of less than $50 million with certain exceptions. 15 U.S.C. Section 78c(a)(55)(B).

    15 U.S.C. Section 78c(a)(68).

    5 A bunched order is an order executed by an account manager on behalf of his customers where such orders are allocated on a post-trade basis to individual customers.

    6 Prime brokerage refers to a special group of services that many brokerages give to special clients. Under a prime brokerage arrangement, a customer of a prime broker will negotiate and agree to economic terms of an SBS with a registered SBS dealer, but both the customer and the executing dealer will face the prime broker, rather than each other.