SEC Delays Application of Securities Laws to Security-based Swaps | Practical Law

SEC Delays Application of Securities Laws to Security-based Swaps | Practical Law

The SEC has extended to February 11, 2014 the effective date of the interim final rules exempting most security-based swaps from the US securities laws.

SEC Delays Application of Securities Laws to Security-based Swaps

Practical Law Legal Update 3-523-9207 (Approx. 3 pages)

SEC Delays Application of Securities Laws to Security-based Swaps

by PLC Finance
Published on 06 Feb 2013 • USA (National/Federal)
The SEC has extended to February 11, 2014 the effective date of the interim final rules exempting most security-based swaps from the US securities laws.
On January 30, 2013, the SEC issued an interim final rule (IFR) extension delaying the application of certain US securities laws to security-based swaps (SBS) for one year, until February 11, 2014. The extension applies to SBS that fall under the Securities Act definition of "securities" due solely to the expansion of that definition by Title VII of the Dodd-Frank Act to include SBS. This extension does not alter the IFR in any respect other than its expiration date.
The IFR, which exempts SBS from the application of the securities laws despite the definitional change, was set to expire February 11, 2013. The exemption allows SBS to continue to trade as they did prior to the enactment of Title VII of the Dodd-Frank Act, provided that the SBS:
  • Are "security-based swap agreements" as defined prior to the enactment of Dodd-Frank, which requires that the swap agreement was entered into between eligible contract participants (as defined prior to Dodd-Frank) and was subject to individual negotiation.
  • Fall under the Securities Act definition of "securities" due solely to the expansion of that definition under Title VII of the Dodd-Frank Act.
This extension does not alter the IFR in any respect other than its expiration date. The following rules will remain in effect under the IFR extension:
  • The Securities Act Rule 240, which exempts SBS from all provisions of the Securities Act except for the antifraud provisions of Section 17(a), as long as the SBS:
  • Exchange Act Rules 12a-11 and 12h-1, which exempt any SBS offered or sold in reliance on Securities Act Rule 240 from the registration requirements of Exchange Act Sections 12(a) and 12(g).
  • The Trust Indenture Act of 1939 Rule 4d-12, which exempts any SBS offered or sold in reliance on Securities Act Rule 240 from the provisions of the Trust Indenture Act.
On February 11, 2014, the SEC will publish a rule either removing the IFR from the applicable sections of the Federal Code of Regulations or modifying these sections as appropriate. It should be noted that the expiration of the IFR and the corresponding application of the US securities laws to SBS will primarily impact uncleared SBS, as most cleared SBS have been granted a permanent exemption from the US securities laws (see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives: Application of Securities Laws to Security-based Swaps).
For more information on the IFR, issued in July 2011, see Legal Update, Dodd-Frank Delay: SEC Issues Further Temporary Securities Law Exemptions for Security-based Swaps.
For more information on the application of US securities laws to security-based swaps, see Practice Note, Summary of the Dodd-Frank Act: Swaps and Derivatives: Application of Securities Laws to Security-based Swaps.
For information on other important Dodd-Frank swap dates, see Dodd-Frank Swaps Calendar.