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U.S. Securities and Exchange Commission

SEC News Digest

Issue 2011-11
January 18, 2011


SEC Proposes Rule for the Timely Acknowledgment and Verification of Security-Based Swap Transactions

On Jan. 14, the Securities and Exchange Commission voted to propose a rule governing the way in which certain security-based swap transactions are acknowledged and verified by the parties who enter into them.

Under the proposed rule, security-based swap dealers and major security-based swap participants, collectively known as SBS entities, would have to provide to their counterparties a trade acknowledgement detailing information specific to the transaction.

The new rule, Rule 15Fi-1, is being proposed under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act which generally authorizes the SEC to regulate security-based swaps. Among other things, the new law gives the SEC the authority to establish standards for the confirmation and documentation of security-based swap transactions entered into by SBS entities.

The proposed rule is another step in the SEC's continuing effort to increase the transparency of the security-based swap market.

The proposed rule would require SBS entities to provide their counterparties with an electronic record containing information specific to the security-based swap transaction.

In particular, it would require an SBS entity to:

  • Provide a trade acknowledgment to its counterparty in a security-based swap transaction within 15 minutes, 30 minutes or 24 hours of execution, depending on whether the transaction is executed or processed electronically.

  • Electronically process security-based swap transactions if the SBS Entity has the ability to do so.

  • Have written policies and procedures in place that are reasonably designed to obtain verification of the terms outlined in the trade acknowledgment.

In addition, the proposed rule would:

  • Specify which SBS entity is responsible for providing the trade acknowledgment.

  • Permit an SBS entity to satisfy the requirements of the proposed rule by processing the transaction through the facilities of a registered clearing agency.

  • Identify the transaction details that must be included in the trade acknowledgement.

  • Provide a limited exemption from the requirements of Rule 10b-10 under the Exchange Act for SBS Entities that are also brokers.

Public comments on the proposed rule should be received by the Commission within 30 days of publication in the Federal Register.

Recent Rulemaking

Under the Dodd-Frank Act, the Commission has been engaging in significant rule-making. Among other things, it has:

  • Proposed Rules Regarding Mandatory Clearing of Security-based Swaps: Proposed rules that would set out the way in which clearing agencies provide information to the SEC about security-based swaps that the clearing agencies plan to accept for clearing.

  • Defining Security-Based Swap Terms: Proposed - jointly with the Commodity Futures Trading Commission - new rules that would further define a series of terms related to the security-based swaps market, including "swap dealer," "security-based swap dealer," "major swap participant," "major security-based swap participant" and "eligible contract participant."

  • Municipal Advisor Registration: Adopted a permanent rule requiring municipal advisors to register with the SEC as required by Dodd-Frank.

  • Improved Oversight of Investment Advisers: Proposed rules implementing the exemptions from registration for advisers to venture capital firms and for certain advisers to private funds and also proposed rules and changes to forms to implement the transition of mid-sized investment advisers (between $25 and $100 million in assets under management) from SEC to State regulation.

  • Security-Based Swap Reporting: Propose new rules entailing how security-based swap transactions should be reported and publicly disseminated.

  • Security-Based Swap Repositories: Proposed rules regarding the registration and regulation of security-based swap data repositories.

  • Whistleblower Incentives and Protection Program: Proposed rules to reward individuals who provide the agency with high-quality tips that lead to successful enforcement actions.

  • Security-Based Swap Fraud: Proposed a new rule to help prevent fraud, manipulation, and deception in connection with the offer, purchase or sale of any security-based swap - as well as in connection with ongoing payments and deliveries under a security-based swap.

  • Security-Based Swap Conflicts: Proposed rules intended to mitigate conflicts of interest for security-based swap clearing agencies, security-based swap execution facilities, and national securities exchanges that post security-based swaps or make them available for trading.

  • Reporting of Pre-Enactment Security-Based Swaps: Adopted an interim rule that requires certain swaps dealers and other parties to report any security-based swaps entered into prior to the July 21 passage of the Dodd-Frank Act. This rule applies only to such swaps whose terms had not expired as of July 21.

  • Strengthening Oversight of Investment Advisers: Proposed new rules to facilitate the registration of advisers to hedge funds and other private funds with the SEC; implement a mandate to require reporting by certain advisers that are otherwise exempt from SEC registration; increase the asset threshold for advisers to register with the SEC; and define "venture capital fund."

  • Asset-Backed Securities: Proposed rules that would enhance ABS disclosure by: 1) requiring registered ABS issuers to perform a review of the assets that underlie the ABS; 2) requiring an ABS issuer to disclose the nature, findings and conclusions of this review of assets; and, 3) requiring the issuer or underwriter for both registered and unregistered ABS offerings to disclose the findings and conclusions of any review performed by a third party that was hired to conduct such a review.

  • Say-on-Pay: Proposed rules, under Dodd-Frank, that would enable shareholders to cast advisory votes on executive compensation and "golden parachute" arrangements.

  • Whistleblower: Proposed a whistleblower program and rules that would reward individuals who provide the agency with high-quality tips that lead to successful enforcement actions.

  • Municipal Advisor Registration: Adopted a temporary rule requiring municipal advisors to register with the SEC.

What's Next?

The proposal seeks public comment and data on a broad range of issues relating to the proposed rule, including the costs and benefits associated with the proposal. After careful review of comments, the Commission will consider whether to adopt the proposed rule or modify it.

(Press Rel. 2011-13)


In the Matter of Cary R. Kahn

On Jan. 14, 2011, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Notice of Hearing (Order) against Cary R. Kahn (Kahn).

In the Order, the Commission's Division of Enforcement (Division) alleges that on March 24, 2010, Kahn, age 57, pled guilty to the felony of mail fraud in violation of Title 18 United States Code, Section 1341 in United States District Court for the District of Colorado, in United States v. Cary Richard Kahn, No. 10-CR-00116-WYD and judgment was entered against him on June 28, 2010. In his guilty plea, Kahn admitted, among other things, that from September 2002 through January 2009, he was manager and general partner of the Double Eagle Fund (Fund), an unregistered investment company in Boulder, Colorado, and that he misrepresented himself to the Fund's investors in order to obtain approximately $2,121,098.70 in investment funds, most of which he then converted to his own use. The Division further alleges that for a portion of that time Kahn was also associated with broker-dealers registered with the Commission.

A hearing will be scheduled before an administrative law judge to determine whether the allegations in the Order are true, to provide Kahn an opportunity to respond to these allegations, and to determine what, if any, remedial action is appropriate in the public interest. The Order directed the Administrative Law Judge to issue an initial decision within 210 days from the date of service of the Order. (Rel. 34-63726; File No. 3-14193)


Immediate Effectiveness of Proposed Rule Change

A proposed rule change (SR-CBOE-2011-001) filed by the Chicago Board Options Exchange relating to PULSe fees has become effective under Section 19(b)(3)(A) of the Securities Exchange Act of 1934. Publication is expected in the Federal Register during the week of January 17. (Rel. 34-63721)





Modified: 01/18/2011