The United States Securities and Exchange Commission (SEC) recently finalized a regulation pursuant to Title VII of the Dodd-Frank Act regarding the requirement for security-based swap data repositories (SBSDRs) to make security-based swap data available to other domestic and foreign regulators. Pursuant to the final regulation, SBSDRs must make available security-based swap data, including individual counterparty trade and position data, to several US financial regulators and the Federal Reserve banks, the US Department of Justice, the Office of Financial Research and any other person (including foreign financial supervisors, foreign central banks, and other foreign authorities) that the SEC determines by order to be appropriate.
Before an SBSDR is required or able to provide this data to any regulator, however, it must ensure that the regulator has a Memorandum of Understanding (MOU) in place with the SEC addressing the confidentiality of information made available.
The SEC did not, however, finalize the proposed requirement for a regulator to agree to indemnify an SBSDR for any expenses arising from litigation relating to the information provided. This requirement was originally included in the statutory text of the Dodd-Frank Act, but was repealed in 2015 in response to a wave of criticisms claiming that it was difficult and, in some cases, impossible for regulators to satisfy.
With this regulation, the SEC has finalized five more rules regarding security-based swaps in 2016. (The other regulations finalized in 2016 relate to reporting, trade confirmations, business conduct standards and certain cross-border issues). For the most part, these regulations do not impose immediate compliance requirements on market participants because the compliance dates for almost all of the SEC’s security-based swap regulations will only be triggered when certain other substantive rules, such as capital and margin requirements for security-based swap dealers, are finalized and become effective. However, the SEC’s recent focus on security-based swap regulations is consistent with SEC Chair White’s congressional testimony that the SEC has “moved into the final phase” of implementing the Dodd-Frank Act mandates regarding security-based swaps, and could be a signal that the agency intends to finalize some of the remaining substantive security-based swap regulations in the near future.