U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Opening Statement at SEC Open Meeting: Item 1 — Product Definitions


Chairman Mary L. Schapiro

U.S. Securities and Exchange Commission

Washington, D.C.
April 27, 2011

Good morning. This is an Open Meeting of the Securities and Exchange Commission on April 27, 2011.

Today, we will consider two items stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act.

First, we will consider proposing new rules and interpretive guidance regarding the definitions of swaps; and

Second, we will consider proposing new rules that would further remove from our rules references to credit ratings.

The first set of proposed rules and interpretive guidance we are considering relate to the definitions of the terms “swap,” “security-based swap,” and “security-based swap agreement.”

The proposal stems from Title VII of the Dodd-Frank Act, which established a comprehensive framework for regulating the over-the-counter swaps markets. Under the new law, regulatory authority over this market is divided between the SEC and the CFTC — with the SEC regulating those products deemed to be "security-based swaps" and the CFTC regulating all other swaps. Both the SEC and CFTC jointly regulate “mixed swaps.”

Although the new law contains broad definitions for those terms, it directed us to further define them. And, it has directed us to develop these definitions jointly with the CFTC, which also is voting on these proposed rules today.

The joint proposed rules and interpretive guidance would clarify certain transactions that are outside the scope of the definitions of “swap” and “security-based swap,” such as insurance contracts and certain commercial and consumer transactions.

The joint proposed rules and interpretive guidance also would clarify certain transactions that are within the scope of the definitions of the terms “swap” and “security-based swap,” such as certain specified products and transactions based on interest rates, other monetary rates, and yields.

In addition, today’s joint proposed rules and interpretive guidance would clarify the applicability of the “narrow-based security index” definition to certain products, including index credit default swaps, the scope and regulation of “mixed swaps,” and the books and records requirements relating to security-based swap agreements.

The definitions we propose today balance several policy and legal issues in a way I believe is practical, takes into account the specific nature of derivatives contracts, and is consistent with existing securities regulations. The proposal before us seeks to provide guidance, in rules and interpretations, by using clear and objective criteria that should clarify whether a particular instrument is a swap regulated by the CFTC, a security-based swap regulated by the SEC, or a mixed swap regulated by both agencies.

We look forward to public comment on today’s proposed rules and interpretive guidance. As you know, recently we formally re-opened the comment period on Regulation MC, and are still welcoming comments on other proposed rulemakings under Title VII even if the comment periods have already closed. We have several rules yet to propose under Title VII. When we have completed all rulemaking proposals, we will consider what further opportunity for public comment would be appropriate.

Before I ask Robert Cook, Director of the Division of Trading and Markets, to discuss the proposed rules, I would like to express my gratitude to the CFTC staff, Commissioners, and Chairman Gensler for their tireless effort in crafting these proposed rules along with our team at the SEC. Undertaking a joint rulemaking of this magnitude can be a challenge, but the CFTC has been an excellent partner throughout this process.

I would also like to thank Robert as well as Brian Bussey, Gregg Berman, Matthew Daigler, Cristie March, Leah Drennan, and Jack Habert from the Division of Trading and Markets; and Amy Starr, Tamara Brightwell, and Michael Reedich from the Division of Corporation Finance for their hard work on this rulemaking.

Thanks as well to David Blass, Paula Jenson, Meridith Mitchell, and Cynthia Ginsburg from the Office of the General Counsel; Lisa Watson and Jeffrey Cohan from the Office of the Chief Accountant; Jennifer Marietta-Westberg, Eric Carr, and Adam Yonce from the Division of Risk, Strategy, and Financial Innovation.

Finally, I would like to thank the Commissioners and all of our counsels for their work and comments on the proposed rules.

Now I'll turn the meeting over to Robert Cook to hear more about the Division’s recommendations.



Modified: 04/27/2011