SEC Re-proposes Security-based Swap Reporting and Recordkeeping Requirements | Practical Law

SEC Re-proposes Security-based Swap Reporting and Recordkeeping Requirements | Practical Law

The SEC proposed data reporting and recordkeeping requirements for security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs).

SEC Re-proposes Security-based Swap Reporting and Recordkeeping Requirements

Practical Law Legal Update 4-565-8651 (Approx. 4 pages)

SEC Re-proposes Security-based Swap Reporting and Recordkeeping Requirements

by Practical Law Finance
Published on 24 Apr 2014 • USA (National/Federal)
The SEC proposed data reporting and recordkeeping requirements for security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs).
On April 17, 2014, the SEC proposed security-based swap (SBS) data reporting and recordkeeping requirements under Title VII of the Dodd-Frank Act for security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs). The SEC has authority under Title VII to supervise and regulate SBS, as well as SBS infrastructures and its market participants. The SBS market is a much smaller fragment of the swaps markets than the non-security based swaps markets that are regulated by the CFTC under Title VII.
Pursuant to section 764 of Dodd-Frank, the SEC added section 15F to the Securities Exchange Act of 1934 (Exchange Act), which, among other things, subjects SBSDs and MSBSPs to swap data reporting and recordkeeping rules that are similar to existing Exchange Act rules for broker-dealers (BDs). This proposal would supplement the previous SEC SBS swap data reporting proposal from November 2010 (see Legal Update, SEC Proposes Rules on Security-Based Swap Reporting and Data Repositories Under the Dodd-Frank Act), referred to as "Reg SBSR," and would, among other things:
  • Revise Exchange Act Rules 17a-3, 17a-4, 17a-5 and 17a-11 to, among other things, include reference to BDs that are also registered SBSDs or MSBSPs (17 CFR 240.17a-3 on records, 240.17a-4 on preservation of records, 240.17a-5 on reporting and 240.17a-11 on notification of net capital decreases).
  • Revise previously proposed Exchange Act Rule 18a-1 (proposed at 17 CFR 240.18a-1 on net capital requirements for SBSDs and MSBSPs).
  • Add new rules 18a-5, 18a-6, 18a-7 and 18a-8 for SBSDs and MSBSPs that are not also registered as BDs (proposed at 17 CFR 240.18a-5 on records, 240.18a-6 on preservation of records, 240.18a-7 on reporting and 240.18a-8 on notification of net capital decreases).
  • Add FOCUS Report Form SBS (17 CFR 249.617).
In addition to requirements for SBSDs and MSBSPs, the proposal would also impose requirements on accountants that examine SBSDs and MSBSPs, which are similar to those for auditors of BDs.
Specifically, these proposed SBS recordkeeping and reporting requirements applicable to non-banks would, among other things:
  • Extend and modify existing reporting obligations for BDs under Exchange Act Rules 17a-3, 17a-4, 17a-5 and 17a-11 to add reporting of SBS data for BDs that are also SBSDs or MSBSPs. These requirements would require these entities to keep books and records, including daily trading records and other records, as well as to report certain SBS information to the SEC and to give notice to the SEC, and if registered as a futures commission merchant (FCM), to the CFTC, if the entity's net capital falls below a predefined minimum amount.
  • Modify the net capital requirements under Exchange Act Rule 18a-1 for SBSDs and MSBSPs.
  • Create new obligations for SBSDs and MSBSPs that are not also registered as BDs by implementing, under proposed Exchange Act Rules 18a-5, 18a-6, 18a-7 and 18a-8, recordkeeping, maintenance, reporting and notification provisions analogous to those for BDs, with certain modifications that take into account certain aspects of the SBS industry.
  • Require reporting of exposures arising from swap transactions generally (not just limited to SBS), including gross replacement values, net replacement values, current net exposure, total exposure and margin collected to collateralize these swaps.
  • Require the filing of a new FOCUS Report Form SBS for each SBSD, MSBSP and any BD that is also a SBSD or MSBSP to report financial and operational information, to, among other things, ensure compliance with SEC net capital requirements for these entities under Exchange Act Rules 17a-11 and 18a-8. Use of the FOCUS report by BDs that are also SBSDs and MSBSPs would replace the BD's use of Part II, Part IIA, Part IIB or Part II CSE of the BD FOCUS report.
Under the proposal, banks would also be required to report certain financial information through certain financial statements, including balance sheets, statements of regulatory capital and income statements. Additionally, banks would be required to report aggregate long and short positions for cleared and non-cleared swaps, including debt, equity, credit default and other swaps.
The proposal is open for public comment for 60 days following its publication in the Federal Register.