The Securities and Exchange Commission (SEC) recently announced that cross-border security-based swaps rules would be a top priority for 2013. SEC Chairman Elisse Walter has characterized the swap rules as “the critical linchpin” of the Dodd-Frank Wall Street Reform and Consumer Protection Act due to the “global nature of the market.”
“That is what is first on the agenda and really stands as the most important thing we need to do as a prelude to adopting everything else,” Walter told the SEC’s Investor Advisory Committee.
The Dodd-Frank Act required the SEC and U.S. Commodity Futures Trading Commission to draft rules aimed to bring greater transparency to the swaps market, which is cited as a contributing factor to the financial crisis. Under Dodd-Frank, the majority of swaps are to be cleared and traded through clearinghouses. Also, swap dealers, including some of the world’s largest banks, are required to register with the CFTC.
The SEC and CFTC have struggled with completing the derivative rules as required under the Dodd-Frank Act. After missing several deadlines, Congress has repeatedly called on the SEC and the CFTC to work together to come up with a workable set of rules. “We are very concerned that a lack of coordination between both foreign and domestic regulators could soon lead to a disruption of the derivatives markets,” 14 members of the House of Representatives from both parties wrote in December.
The CFTC has previously released guidance regarding the cross-border application of certain swaps provisions of Dodd-Frank. However, the CFTC has also issued a series of no-action letters and exemptions, which many argue have resulted in a lot of unanswered questions.
To avoid similar confusion, Walter has indicated that the SEC plans to release a formal rulemaking proposal that will include economic analysis of effects of cross-border application of new rules. A timeline, however, has not been announced.
If you have any questions about the new rules for cross-border swaps or would like to discuss how they may impact your business, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work.