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SEC Proposes Disqualified Persons Waiver Rule for Security-based Swap Dealers
Practical Law Legal Update 6-618-0469 (Approx. 4 pages)
SEC Proposes Disqualified Persons Waiver Rule for Security-based Swap Dealers
by Practical Law Finance
| Published on 12 Aug 2015 • USA (National/Federal) |
The SEC announced Proposed Rule of Practice 194, which would allow security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs) to obtain a waiver to continue working with persons subjected to statutory discipline.
On August 5, 2015, the SEC announced the release of Proposed Rule of Practice 194, which would allow security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs, and collectively with SBSDs, SBS Entities) to obtain a waiver to continue working with persons subjected to statutory discipline.
The use of waivers allowing penalized persons to continue to participate in security-based swap (SBS) activity has been a subject of SEC discussion in recent months (see Practice Note, Settling Securities Cases with Federal Regulators: Disclosure and Disqualifications). Under the proposed rule, the SEC would have to make the determination that allowing a person who had been statutorily disqualified from participating in SBS transactions to continue to participate in SBS transactions would be in the public interest.
Application for SBS Disqualification Waiver
Under the proposal, whether or not the disqualified person is a natural person, the application for the disqualification waiver would include both a form application and written statement. The SEC further proposes that the SBS Entity, rather than the disqualified person, submit the application as this would create an additional level of oversight over the disqualified individual in question.
The proposed system, which is largely modelled on SEC Rule of Practice 193, would initially allow a disqualified non-natural person a temporary 30-day exemption to continue in its respective role with the SBS Entity while the SEC considers its application. This automatic temporary exemption does not, however, apply to disqualified natural persons.
The application for the disqualification waiver would need to include:
- A copy of the order or document that resulted in the person's disqualification, as well as any other disciplinary sanctions the disqualified person has incurred within the previous five years.
- An obligation to inform the SEC should any information submitted in the application become false while the application is being considered.
- For those disqualified persons who are natural persons, a copy of a questionnaire, or application for employment under Exchange Act Rule 15Fb6-2(b), which would provide the SEC with basic background information.
- In addition, for those disqualified persons that are not natural persons the following are required:
- the entity's organizational chart;
- a copy of the entity's policies and procedures related to the conduct which resulted in the statutory discipline; and
- a list of any natural persons employed by the disqualified person who would be involved in SBS activity for the SBS Entity.
Proposed Rule of Practice 194 would also require the applicant to submit a written statement consisting of:
- The disqualified person's compliance with the relevant order or judgment.
- The proposed relationship between the disqualified person and the SBS Entity.
- The disqualified person's complete disciplinary and compliance history for the previous five years, including any litigation or unsatisfied judgments concerning investment or investment-related activities.
- A statement concerning why the SBS Entity believes it would be in the public interest for the disqualified person to continue to engage in SBS activities on behalf of the applicant.
- Any other information the applicant believes is material to the application.
- In addition, for those disqualified persons who are natural persons, the statement must include:
- the disqualified person's employment history after the statutory discipline in question;
- the circumstances by which the disqualified person would be employed and supervised at the SBS Entity;
- the qualifications, experience and disciplinary history of the disqualified person's proposed supervisor;
- the names of any other persons employed at the applicant who have been subject to statutory discipline, and whether they will be supervised by the disqualified person; and
- the disqualified person's activity after the statutory discipline in question which would prepare them for SBS activity (such as any courses or seminars).
- In addition, for those disqualified persons who are not natural persons:
- customary bookkeeping information of the disqualified person, such as employees, offices, type of business and any relevant SRO memberships; and
- whether the statutory discipline in question involved any mandatory changes to the disqualified person's organizational structure, policies or procedures.
Optional Notice in Lieu of Application
The SEC also proposed circumstances where an SBS Entity could allow a disqualified person to effect SBS activity without submitting the application discussed above, in circumstances where:
- The terms and conditions of the disqualified person's relationship with the SBS Entity are materially the same time when the above membership was granted.
- If the disqualified person is a natural person, the SBS Entity has filed a notice with the SEC stating:
- the name of the SBS Entity, disqualified person and the disqualified person's supervisor at the SBS Entity;
- the disqualified person's place of employment; and
- the name of the respective agency or SRO that has agreed to the association with the disqualified person.
- If the disqualified person is not a natural person, the SBS Entity has filed a notice with the SEC stating:
- The name of the SBS Entity, disqualified person and the agency or SRO that has agreed to the association with the disqualified person.
The comment period for Proposed Rule 194 will be 60 days from publication in the Federal Register.