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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Opening Statement at the SEC Open Meeting: Item 2 — Preventing Fraud in Connection With Security-Based Swaps


Chairman Mary L. Schapiro

U.S. Securities and Exchange Commission

Washington, D.C.
November 3, 2010

Next, we will consider a proposal designed to prevent fraud, manipulation, and deception in connection with security-based swaps. This proposal originates from Title VII of the Dodd-Frank Act, which generally authorizes the Commission to regulate security-based swaps.

One section of the new law, section 763(g), directs the Commission to draft rules reasonably designed to prevent fraudulent, deceptive, and manipulative conduct in connection with security-based swaps.

For decades, the SEC has had the authority to pursue fraud in connection with the sale, purchase and offering of securities. And, securities based swaps, will be fully subject to the existing antifraud and anti-manipulation provisions of the federal securities laws.

However, today’s rule recognizes that security-based swaps are unlike other securities in that swaps are typically characterized by ongoing payments or deliveries between the parties throughout the life of the swap.

So, it is possible that one party may engage in misconduct to trigger, avoid or affect the value of such ongoing payments. As a result, such fraud may occur separately from the sale, purchase or offering.

Thus, in addition to offers, purchases and sales of security-based swaps, the proposed antifraud rule would also explicitly apply to the cash flows, payments, deliveries, and other ongoing obligations and rights that are specific to security-based swaps.

The rule would make explicit the liability of persons that engage in misconduct to trigger, avoid, or affect the value of such ongoing payments or deliveries.

By targeting misconduct that is specific to the ways in which security-based swaps are structured and used, the proposed rule would be an important means to ensure that the security based swap market operates with integrity and that the Commission has the ability to respond through enforcement to a range of potentially fraudulent conduct.

Before I turn to Jamie Brigagliano, I would like to thank the staff of the Division of Trading and Markets for their commendable work on this matter, specifically, Jamie, Robert Cook, Josephine Tao, and Joan Collopy.

I would also like to thank our colleagues in the office of the General Counsel, specifically David Blass and Sara Cortes, as well as their colleagues in the Division of Enforcement, specifically Jason Anthony, Scott Stanley, and Jill Henderson.

I would also like to thank our colleagues in the Division of Corporation Finance, specifically Amy Starr, as well as our colleagues, Adam Glass and Burt Porter, in the Division of Risk, Strategy, and Financial Innovation.

Now I will ask Jamie to provide us with additional details about the Division’s recommendations.



Modified: 11/03/2010