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Financial Services Law Insights and Observations


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  • SEC amends electronic recordkeeping requirements for security-based swap entities

    Agency Rule-Making & Guidance

    On October 12, the SEC adopted final amendments to its rule governing the electronic recordkeeping requirements for security-based swap entities. (See SEC fact sheet here.) The updates are applicable to security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs), and are intended to make the rule adaptable to new technologies in electronic recordkeeping. The amendments will also facilitate examinations of broker-dealers, SBSDs, and MSBSPs by “designating broker-dealer examining authorities as Commission designees for purposes of certain provisions of the broker-dealer record maintenance and preservation rule,” the SEC said. Specifically, the amendments address requirements related to the maintenance and preservation of electronic records, the use of third-party recordkeeping services to hold records, and the prompt production of records. Under the SEC’s broker-dealer electronic recordkeeping rule, broker-dealers are required “to preserve electronic records exclusively in a non-rewriteable, non-erasable format,” known as the “write once, read many format.” The amendments now provide an audit-trail alternative under which broker-dealers “must preserve electronic records in a manner that permits the recreation of an original record if it is altered, over-written, or erased.” According to the SEC’s announcement, the audit-trail alternative is intended to provide broker-dealers greater flexibility when configuring their electronic recordkeeping systems so they more closely align with current electronic recordkeeping practices, while also ensuring that the authenticity and reliability of the original records are protected. The amendments are also applicable to nonbank SBSDs and MSBSPs.

    The final amendments are effective 60 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Securities SEC Federal Issues Swaps Recordkeeping

  • CFTC updates its interest rate swap clearing requirements as LIBOR ends

    Federal Issues

    On August 12, the CFTC issued a final rule updating its interest rate swap clearing requirement under part 50 of the CFTC’s regulations. Among other things, the final rule eliminates the requirement to clear interest rate swaps referencing LIBOR and other interbank offered rates and replaces them with requirements to clear interest rate swaps referencing overnight, nearly risk-free reference rates. The final rule also “updates the swaps required to be submitted for clearing to a derivatives clearing organization (DCO) or an exempt DCO and the compliance dates for such swaps.” According to CFTC Chairman Rostin Behnam, the final rule “promotes financial stability and mitigates systemic risk,” and “is essential to ensure cross border harmonization in the interest rate swaps market.” The final rule is effective 30 days after publication in the Federal Register.

    Federal Issues Agency Rule-Making & Guidance CFTC LIBOR Swaps Federal Register Interest Rate

  • ARRC releases recommendations for LIBOR ICE contracts

    Federal Issues

    On June 8, the Alternative Reference Rates Committee (ARRC) issued recommendations for contracts linked to U.S. dollar LIBOR Intercontinental Exchange Swap Rates. According to the ARRC, the recommendations recognize that such contracts are not covered by federal LIBOR legislation and that counterparties may have to take proactive steps to address the end of the USD LIBOR ISR. The recommendations include a suggested fallback formula that may be used for USD LIBOR ISR fixings after three-month USD LIBOR has been discontinued or becomes non-representative. The ARRC also noted that if a legacy position cannot be proactively converted or amended, “the ARRC believes that, once three-month USD LIBOR has ceased to be published as a representative rate, the fallback formula suggested would accurately represent the at-the-money rates of standard interest rate swaps which are tied to it and which incorporate the fallback provisions introduced in the ISDA 2020 IBOR Fallbacks Protocol.”

    Federal Issues ARRC LIBOR Swaps

  • CFTC issues no-action letter on compliance date for swap data

    Agency Rule-Making & Guidance

    On January 31, the CFTC issued a no-action letter on the compliance dates for the November 25, 2020 amendments to the swap data reporting rules. According to the letter, the CFTC’s Division of Data does not recommend that the Commission take enforcement action against market participants “for failure to comply with the Amendments before December 5, 2022, and for failure to comply with the Block and Cap Amendments before December 4, 2023, provided that the entity comply with the Parts 43, 45, 46, and 49 regulations that were in effect on January 1, 2021.” A statement released by CFTC Commissioner Dawn D. Stump noted that she “expect[s] market participants to work diligently toward resolving the operational and technological issues they have encountered in complying with the Amendments,” and that she hoped the efforts will “better align swap data reporting rules internationally [and] will at last permit much needed international deference among the various regulatory bodies who long ago committed to improving swap data for the benefit of these global markets.”

    Agency Rule-Making & Guidance Federal Issues CFTC Swaps Compliance

  • FINRA adopts securities-based swap amendments


    On January 20, the Financial Industry Regulatory Authority (FINRA) issued Regulatory Notice 22-03, adopting amendments to certain FINRA rules and clarifying their application to security-based swaps (SBS). According to FINRA, Rule 0180 replaces expiring temporary Rule 0180 and generally applies FINRA rules to members’ activities and positions with respect to SBS, with limited exceptions. FINRA also amended its financial responsibility and operational rules to conform to the SEC’s SBS-related capital, margin, and segregation requirements. The amendments are effective February 6. In addition, FINRA adopted a SBS-specific margin rule, Rule 4240 (Security-Based Swap Margin Requirements), which replaces the expiring interim pilot program establishing margin requirements for credit default swaps. The new margin rule, along with related amendments to Rules 4210 (Margin Requirements) and 4220 (Daily Record of Required Margin), are effective April 6.

    Securities Agency Rule-Making & Guidance FINRA Swaps

  • CFTC revises LIBOR transition no-action letters

    Federal Issues

    On December 22, the CFTC announced that the Division of Clearing and Risk (DCR), Division of Market Oversight (DMO), and Market Participants Division each issued revised no-action letters (see 21-2621-27, and 21-28) to swap dealers and other market participants associated with the transition from swaps that reference LIBOR and other interbank rates to swaps that reference alternative benchmarks. As previously covered by InfoBytes, the United Kingdom’s Financial Conduct Authority announced the dates that all LIBOR settings will cease to be provided by any administrator and will no longer be representative. All sterling, euro, Swiss franc and Japanese yen settings, and one-week and two-month U.S. dollar settings ceased immediately after December 31, 2021, while all remaining U.S. dollar settings will cease immediately after June 30, 2023. Therefore, according to the recent CFTC announcement, the DMO and the DCR letters are effective until June 30, 2023 “for swaps otherwise covered by such letters to the extent such swaps reference one of the 2023 USD LIBOR Settings.”

    Federal Issues CFTC LIBOR UK Of Interest to Non-US Persons Financial Conduct Authority Swaps

  • SEC proposes rules connected to security-based swaps transactions


    On December 15, the SEC announced that the Commission voted to propose three rules under the Exchange Act “to prevent fraud, manipulation and deception in connection with security-based swaps, to prevent undue influence over the chief compliance officer of security-based swap dealers and major security-based swap participants, and to require any person with a large security-based swap position to publicly report certain information related to the position.” According to the proposed rules, Rule 9j-1 would be “designed to prevent fraud, manipulation, and deception in connection with effecting transactions in, or inducing or attempting to induce the purchase or sale of, any security-based swap.” Rule 15Fh-4(c) “would make it unlawful for any officer, director, supervised person, or employee of a security-based swap dealer or major security-based swap participant, or any person acting under such person’s direction, to directly or indirectly take any action to coerce, manipulate, mislead, or fraudulently influence the security-based swap dealer’s or major security-based swap participant’s CCO in the performance of their duties under the Federal securities laws or the rules and regulations thereunder.” Rule 10B-1 would require any individual “with a security-based swap position that exceeds a certain threshold to promptly file with the Commission a schedule disclosing among other things: (1) the applicable security-based swap position; (2) positions in any security or loan underlying the security-based swap position; and (3) any other instrument relating to the underlying security or loan, or group or index of securities or loans.” Additionally, Rule 10B-1 “includes different reporting thresholds for security-based swaps tied to debt securities and security-based swaps tied to equity securities.” Comments are due 45 days after publication in the Federal Register.

    Securities Agency Rule-Making & Guidance Swaps SEC

  • CFTC announces a $500,000 fine for swap dealer


    On October 14, the CFTC announced a $500,000 settlement with a non-U.S. provisionally registered swap dealer to resolve claims that it failed to comply with certain swap dealer recordkeeping requirements. Among other things, the institution allegedly failed to retain certain audio recordings for the time required under CFTC regulations. In addition to the civil monetary penalty, the institution must cease and desist from further violations of the CFTC regulations and must continue its remediation efforts.

    Securities CFTC Commodity Exchange Act Swaps Enforcement Of Interest to Non-US Persons

  • CFTC announces more than $2.5 million in fines for swap data reporting violations


    On September 29, the CFTC announced a $1.5 million settlement with a non-U.S. provisionally registered swap dealer headquartered in France to resolve claims that it failed to comply with certain swap dealer reporting requirements. Among other things, the swap dealer allegedly failed to meet mid-market mark disclosure requirements for numerous swaps, failed to accurately report certain swap valuation data to a swaps data repository, and did not diligently perform its supervisory obligations related to these disclosures. In addition to the civil monetary penalty, the swap dealer must cease and desist from further violations of the Commodity Exchange Act and CFTC regulations and must continue its remediation efforts.

    Earlier, on September 27, the CFTC announced a $1 million civil monetary penalty to resolve allegations that a global financial institution violated swap data legal entity identifier (LEI) reporting requirements as well as related supervision responsibilities. According to the CFTC, the alleged failures violated the cease and desist provision of a 2017 CFTC order, in which the CFTC found that the financial institution, among other things, failed to report LEI swap transaction data or establish systems and procedures to do so, did not correct errors in previously reported LEI data, and failed to diligently perform its supervisory duties when reporting LEI swap data. The 2017 order imposed a $550,000 civil monetary penalty and required the financial institution to cease and desist violating CFTC regulations. The CFTC’s September 27 order further found that the financial institution’s alleged continued reporting failures occurred, in part, from a failure to diligently supervise its swap dealer activities with respect to LEI swap data reporting.

    Securities CFTC Enforcement Swaps Of Interest to Non-US Persons Commodity Exchange Act

  • SEC, ECB sign MOU concerning security-based swap entity oversight


    On August 16, the SEC and the European Central Bank (ECB) entered into a Memorandum of Understanding (MOU) intended to facilitate the consultation, cooperation, and exchange of information connected with the supervision, enforcement, oversight, and inspection of certain security-based swap dealers and major security-based swap entities in EU member states registered with the SEC and supervised by the ECB. These include SEC-registered security-based swap entities participating in the Single Supervisory Mechanism (SSM), the EU’s system of banking supervision, which “is composed of the ECB and the relevant national competent authorities of participating EU Member States.” Among other things, the MOU will “support the SEC’s oversight of the operation of substituted compliance orders that the Commission has issued for security-based swap entities in France and Germany, as well as any future substituted compliance orders for such firms in other EU Member States that participate in the SSM,” to enable an entity to comply with certain Dodd-Frank Act requirements by complying with comparable EU and EU Member State laws. The MOU, which is intended to “foster cooperation” and exchange information between the authorities, states that at the date of execution, “no bank secrecy, blocking laws, or other regulations or legal barriers, should prevent an Authority from providing assistance to the other Authority pursuant to this MOU, or otherwise adversely affect or hinder the operation of this MOU.”

    Securities Swaps Of Interest to Non-US Persons MOUs EU Dodd-Frank


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