SEC Issues A Roadmap for the Sequencing of Its Dodd-Frank Rules

in Derivatives, Securities and Exchange Commission

By Hyun K. Kim

The Securities and Exchange Commission (the “SEC”) recently issued a policy statement regarding the sequencing of the compliance dates for final rules applicable to security-based swaps to be adopted by the SEC pursuant to the Securities Exchange Act of 1934, as amended by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).  The policy statement was published in the Federal Register on June 14, 2012.  The comment period for the policy statement expired on August 13, 2012.

The policy statement only provides the following general order in which various rules would likely be adopted and become effective (i.e., starting with category 1 rules and moving on to latter categories, with category 5 rules being the last to be implemented), but does not provide specific compliance dates for those rules or a conclusive sequencing of compliance dates:

Category 1:     first, rules further defining the terms “security-based swap,” “security-based swap agreement,” “mixed swap,” “security-based swap dealer” (“security-based SDs”), “major security-based swap participant” (“MSSPs”) and “eligible contract participant”, and second, the rules concerning the treatment of cross-border security-based swap transactions and non-U.S. persons acting in capacities regulated under Subtitle B of Title VII of Dodd-Frank;

Category 2:     rules pertaining to the registration and regulation of swap data repositories (“SDRs”), the reporting of security-based swap transaction data to SDRs, the public dissemination of security-based swap transaction data, and the duties and core principles applicable to SDRs;

Category 3:     rules pertaining to the mandatory clearing process of security-based swap transactions, the SEC’s review of security-based swaps submitted by clearing agencies and its determination of whether such security-based swaps should be required to be cleared, clearing agency standards, and the end-user exception from mandatory clearing;

Category 4:     rules pertaining to the registration and regulation of security-based SDs and MSSPs, including business conduct standards, capital, margin and segregation requirements, and reporting and recordkeeping requirements; and

Category 5:     rules pertaining to the mandatory trading of security-based swap transactions, including the rules pertaining to the registration and regulation of security-based swap execution facilities.

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