No Effectivity on July 16 for Dodd-Frank Requirements for Security-based Swaps – SEC

Jack Humphrey, Regulatory journalist
June 20, 2011 /

The Securities and Exchange Commission (SEC) has released a guidance and temporary relief regarding security-based swap provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The decision came after the SEC has announced earlier that it was moving to address one-year effective date of Title VII of the Dodd-Frank Act.

The guidance makes it clear what provision of the Title VII requirements of the Dodd-Frank Act will apply to security-based swap transactions as of its effective date on July 16.

Moreover, market participants have been given temporary relief from compliance with most of the new Exchange Act requirements.

Section 29(b) of the Exchange Act generally provides that contracts violating any provision of the Act shall be void as to the rights of any person who violated it. The guidance has granted market participants a temporary relief from this rule.

Consequently, all of Title VII’s requirements applicable to security-based swaps will not go into effect on July 16 as clarified by the guidance.

Title VII is the portion of the Dodd-Frank Act that establishes a comprehensive framework for regulating over-the-counter derivatives.

It is particularly used by the SEC to regulate “security-based swaps” while also authorizing the CFTC to regulate other swaps. The portion of Title VII referred to as Subtitle B, which addresses the new regulatory regime for security-based swaps, generally will take effect on July 16, which is 360 days after the date of the Dodd-Frank Act’s enactment.

Robert Cook, Director of the SEC’s Division of Trading and Markets, said: “This is the first step in a series of actions the SEC intends to take in coming days to address effective date issues.

“Temporarily and to the extent appropriate, our goal is to preserve the pre-Dodd-Frank Act legal framework until we complete the rulemaking tasks and develop a workable implementation plan.”

However, the antifraud and anti-manipulation prohibitions of the federal securities laws will continue to apply to security-based swaps after July 16.

The SEC will seek public comment on a detailed implementation plan that will permit a rollout of the new securities-based swap requirements when proposals for all of the key rules under Title are done.

The SEC intends to minimize unnecessary disruption and costs to the markets along the process.

Although the guidance and temporary relief are now in effect, the Commission is seeking input from the public on today’s actions.

Public comments should be received by July 6, 2011.


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