Statement at Open Meeting on Final Rules Regarding Application of Title VII Dealer De Minimis Requirements to Security-Based Swap Dealing Activity in the United States

Good morning.  This is an open meeting of the U.S. Securities and Exchange Commission on February 10, 2016 under the Government in the Sunshine Act.  The Commission today will consider a staff recommendation to adopt final rules to implement the last set of requirements regarding the trades that security-based swap dealers need to include in computing their dealer de minimis thresholds under Title VII of the Dodd-Frank Act, which determines whether a security-based swap dealer will be subject to the registration and other requirements of Title VII.

Specifically, today’s recommendation addresses how we will determine whether or not a non‑U.S. dealer must register with the Commission when that dealer uses personnel located in the United States to arrange, negotiate, or execute a security-based swap with a non-U.S. counterparty.  This important issue is one we have considered in prior releases, including in a re-proposal last year, and it is one that the CFTC continues to consider.

The final rules before us today are integral to the SEC’s regulation of the security-based swap market, representing a key milestone in the completion of our regime for overseeing dealers.  These rules will help ensure that security-based swap dealing activity carried out in the United States is treated similarly for purposes of the registration requirements for dealers, whether carried out by a U.S. person or by a non-U.S. person.

Completing the entire Title VII regulatory regime for security-based swap dealers is a high priority for the Commission.  After finalizing the groundrules for U.S. activity with today’s anticipated action, the Commission will be able to proceed to adopt the remaining requirements for dealers – in particular, rules for how they conduct business with counterparties and how they use capital, margin, and asset segregation to maintain their financial strength and protect counterparties.  Throughout this process, we continue to consult with our colleagues at the CFTC to develop a coordinated, efficient regulatory framework that meets the important objectives of Title VII of the Dodd-Frank Act.

Foremost among those objectives are reducing risk, enhancing transparency, and promoting market integrity within the financial system.  Today’s rules will further these goals by helping ensure that all transactions of dealers that involve market-facing activity by personnel located in the United States are treated equally.  In today’s global security-based swap market, much of the transaction volume occurs in the United States, especially for security-based swap transactions involving U.S.-based reference entities.  The rules being considered today would subject this significant activity to Title VII’s dealer requirements, thereby promoting the goals of OTC derivatives reform and avoiding a world in which market participants are able to exit our regulatory framework without also exiting the U.S. security-based swap market.  By doing so, the rules should also mitigate the likelihood and extent of market fragmentation, which could limit U.S. market participants to a liquidity pool that is only a fraction of the current size of the current market, with potentially worse pricing and less efficiency.

I want to commend the staff on their thoughtful analysis and hard work on these final rules, which are an important step forward in completing our Title VII mandates.

Before I ask Steve Luparello, Director of the Division of Trading and Markets, to discuss the staff recommendation, I would specifically like to thank Steve and his Deputy Director, Gary Barnett, for their leadership on this rulemaking, as well as Steve’s counsels Malou Huth and Carl Emigholz.  I would also like to especially commend the rulemaking team for their hard and exceptional work:  Brian Bussey, Carol McGee, Richard Gabbert, and Margaret Rubin from the Office of Derivatives Policy, and Mark Flannery, Jennifer Marietta-Westberg, Vanessa Countryman, Narahari Phatak, and Charles Lin from the Division of Economic and Risk Analysis.

Many thanks as well to Annie Small, Lori Price, Brooks Shirey, Bob Bagnall, and Mykaila DeLesDernier, from the Office of the General Counsel.  They have provided invaluable assistance in developing and fine-tuning the release.

In addition, I would like to thank many other staff throughout the agency for their contributions, including Paul Dudek, Amy Starr, and Andrew Schoeffler from the Division of Corporation Finance; Reid Muoio, Charlotte Buford, and Kerry Knowles from the Division of Enforcement; Sara Crovitz, Michael Didiuk, and Rachel Loko from the Division of Investment Management; Michael Hershaft and Carrie O’Brien from the Office of Compliance Inspections and Examinations; Katherine Martin and Laura Compton from the Office of International Affairs.

Finally, I would like to express my gratitude to my fellow Commissioners and all of our counsels for their work and comments on these and related rules over these past months.

Now I’ll turn the meeting over to Steve Luparello and his team to provide additional information on the Division’s recommendations today.