The Securities and Exchange Commission on February 11 published the texts of two final rules and one proposed rule that establish reporting requirements for security-based swaps (SBSs). These rules, previously adopted by the SEC in a meeting on January 14, 2015, create a reporting regime for SBSs that largely parallels the swaps reporting regime adopted by the Commodity Futures Trading Commission (CFTC) under the Dodd-Frank Act. As detailed further below, these rules generally set out requirements for SBS data repositories (SDRs); identify the SBS data required to be reported, the methodology for determining the reporting party, and cross-border application of the relevant rules; propose guidance regarding the application of the SBS reporting requirements in particular circumstances; and propose specific reporting compliance dates. Public comments on the proposed rule and compliance dates are due 45 days after publication in the Federal Register.
- SBS Data Repository Final Rule – “Security-Based Swap Data Repository Registration, Duties, and Core Principle” (Release No 34-74246): This final rule sets out the requirements for an entity to become registered as an SDR that may accept reports concerning one or more types or classes of SBSs (such as certain types of credit derivatives or equity derivatives). Under the rule, each SDR is responsible for collecting and maintaining accurate SBS transaction data from reporting parties. The compliance date for SDR registration is 365 days after publication in the Federal Register.
- SBS Reporting Final Rule – “Regulation SBSR – Reporting and Dissemination of Security-Based Swap Information” (Release No 34-74244): This final rule provides for reporting of SBS information to SDRs or the Commission, and for public dissemination of SBS transaction information by SDRs. The rule identifies the data that must be included in each SBS report and specifies a methodology for identifying the party that bears the reporting burden. This methodology differs in significant ways from the CFTC’s corresponding rules. For example, the SEC’s reporting hierarchy takes into consideration the status of a counterparty’s guarantor (not just the counterparties themselves), such that a non-registrant counterparty that is guaranteed by a registered security-based swap dealer would be treated as though it was a registered security-based swap dealer. The rule requires SBS counterparties to report many of the same fields as those required by the CFTC, but additionally requires information regarding, among other things, the traders, trading desks and brokers involved in a trade, as well as information about the legal documentation for the trade. The SEC did not finalize its rules regarding block trade reporting delays, and instead adopted an interim phase-in of its reporting requirements, whereby counterparties are not required to report any trades to an SDR until 24 hours after execution during the initial phase. The rule covers pre-enactment (i.e., pre-July 21, 2010) SBS that were still in effect on that date as well as transitional SBSs.
- Proposed Supplement to SBS Reporting Rule– “Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information” (Release 34-74245): This proposed rule would supplement and amend Regulation SBSR by: (i) providing rules for the reporting of cleared SBS; (ii) providing an interpretation explaining the application of Regulation SBSR to prime brokerage transactions and guidance concerning the reporting of SBS allocation; and (iii) proposing compliance dates for SBS reporting and public dissemination. The proposed rules outline separate compliance dates for reporting and public dissemination as follows:
- Compliance Date 1 – Mandatory reporting of SBSs in a particular asset class to an SDR would be required six months after the first SDR commences operations and accepts reports of SBSs in that particular asset class. Mandatory reporting would apply to newly executed and historical SBSs. The SEC believes that six months should allow adequate time for market participants to analyze and comply with the policies and procedures of a registered SDR, perform systems testing, and begin SDR reporting.
- Compliance Date 2 – Mandatory public dissemination of information concerning SBSs in a particular asset class would be required within nine months after the first SDR commences operations and accepts reports of SBSs in that particular asset class.