SEC Proposes Exemption for Certain Security-based Swaps from Registration under Securities Act | Practical Law

SEC Proposes Exemption for Certain Security-based Swaps from Registration under Securities Act | Practical Law

The SEC has proposed a rule that would exempt security-based swaps (SBS) from registration under the Securities Act if offered only to eligible contract participants (ECPs) on a security-based SEF or other eligible trading platform.

SEC Proposes Exemption for Certain Security-based Swaps from Registration under Securities Act

by Practical Law Finance
Published on 10 Sep 2014 • USA (National/Federal)
The SEC has proposed a rule that would exempt security-based swaps (SBS) from registration under the Securities Act if offered only to eligible contract participants (ECPs) on a security-based SEF or other eligible trading platform.
On September 8, 2014, the SEC released a proposed rule that would exempt certain communications involving security-based swaps (SBS) that may be purchased only by eligible contract participants (ECPs) from being considered "offers" for purposes of Section 5 of the Securities Act.
Under the Dodd-Frank Act, all SBS are included in the definition of "security" and unless specifically exempt, counterparties entering into SBS transactions are included in the requirement that any offer and sale of a security must be registered under the Securities Act. The SEC proposed to exempt the publication or distribution of price quotes relating to SBS that may be purchased only by ECPs and which are traded or processed on or through a facility that is either:
  • Registered as a national securities exchange or as a security-based SEF.
  • Exempt from registration as a security-based SEF pursuant to a rule, regulation or order of the SEC (an “eligible trading platform”).
Under the proposed rule, these communications would not be deemed to constitute an offer, an offer to sell or a solicitation of an offer to buy or purchase SBS or any guarantees of such SBS that are securities for purposes of Section 5 of the Securities Act. The exempt communications will therefore not be subject to the prospectus delivery or registration requirements of the Securities Act.
Note that cleared SBS are already exempt from the US securities laws (see Practice Note, US Derivatives Regulation: Application of Securities Laws to Security-based Swaps: Cleared Security-based Swaps Exempt from Securities Laws).
The SEC requests that public comment be submitted on or before November 10, 2014.