SEC Adopts Changes to Security-Based Swaps Rules

The Securities Exchange Commission today finalized a package of proposed changes and guidance related to the regulation of cross-border security-based swaps, including single-name credit default swaps. Together, the rules are intended to establish a coherent approach to the regulation of margin, capital, segregation, recordkeeping and reporting and business conduct for security-based swaps.

The rules address four key areas, including—among other things—the use of transactions that have been “arranged, negotiated, or executed” by personnel located in the United States as a trigger for enhanced U.S. regulation of security-based swaps and market participants and the requirement that nonresident security-based swap dealers and major security-based swap participants (collectively known as “SBS entities”) provide certification and opinion of counsel regarding the SEC’s ability to access information and conduct onsite examinations.

In related news, the SEC also voted today to adopt rules establishing new requirements for applying risk mitigation techniques to portfolios of uncleared security-based swaps. The rules establish requirements for SBS entities to periodically reconcile security-based swaps with counterparties; engage in certain forms of portfolio compression exercises; and execute written trading relationship documentation with each of their counter parties prior to or during the execution of a security-based swap transaction.