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SEC Provides Additional Guidance, Interim Relief and Exemptions for Security-Based Swaps Under Dodd-Frank Act


Washington, D.C., July 1, 2011 — The Securities and Exchange Commission today provided additional guidance to clarify which U.S. securities laws will apply to security-based swaps starting July 16 -- the effective date of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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That Act created a new regulatory framework for over-the-counter derivatives, authorizing the SEC to regulate security-based swaps and the Commodity Futures Trading Commission to regulate other swaps. Under the Dodd-Frank Act, starting July 16, 2011, security-based swaps are defined as “securities” subject to existing federal securities laws, including the Securities Act of 1933 and the Securities Exchange Act of 1934.

As one part of today’s action, the Commission approved an order granting temporary relief and interpretive guidance to make clear that a substantial number of the requirements of the Exchange Act applicable to securities will not apply to security-based swaps when the revised definition of “security” goes into effect on July 16. Nevertheless, federal securities laws prohibiting fraud and manipulation will continue to apply to security-based swaps after that date. To enhance legal certainty for market participants, the Commission also provided temporary relief from provisions of U.S. securities laws that allow the voiding of contracts made in violation of those laws.

“As we move forward with the implementation of the Dodd-Frank Act, this temporary relief will help maintain the existing legal framework for security-based swaps under the Exchange Act until the Commission adopts new rules for these transactions,” said Robert Cook, Director of the SEC’s Division of Trading and Markets.

In addition, the Commission approved an interim final rule providing exemptions from the Securities Act, Trust Indenture Act and other provisions of the federal securities laws to allow certain security-based swaps to continue to trade and be cleared as they have pre-Dodd-Frank. That interim relief will extend until the Commission adopts rules further defining “security-based swap” and “eligible contract participant.”

The Commission previously issued guidance in this area on June 15 and plans additional steps in coming days related to the July 16 effective date. Although these actions have been approved, the Commission is seeking input from the public on today’s actions.

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Modified: 07/01/2011