SEC Toughens Security-Based Swap Data Reporting Rules

The new rules adopted by the Securities and Exchange Commission (SEC) change the way transaction information is collected and disseminated by security-based swap data repositories, or SDRs.

The adopted rules require most SDRs to register with the SEC. The SEC also proposed certain additional rules, rule amendments and guidance related to the reporting and public dissemination of security-based swap transaction data. According to the SEC, the adopted and proposed rules are designed to increase transparency in the security-based swap market and to ensure that SDRs maintain complete records of security-based swap transactions that can be accessed by regulators.

The rules implement mandates under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC notes. The regulatory action could improve transparency and data access for defined benefit retirement plans using derivatives and others security-based swap instruments in their pension portfolios.

“These rules go to the core of derivatives reform by establishing a strong foundation for transparency and efficiency in the market,” said SEC Chair Mary Jo White.  “They provide a powerful framework for trade reporting and the public dissemination of information that addresses blind spots exposed by the financial crisis.”

The SEC adds that the new rules include an exemption from registration for certain non-U.S. SDRs, when specific conditions are met. The rules addressing security-based swap data reporting and public dissemination, known as Regulation SBSR, outline the information that must be reported and publicly disseminated for each security-based swap transaction. In addition, the rules assign reporting duties for many security-based swap transactions and require SDRs registered with the SEC to establish and maintain policies and procedures for carrying out their duties under Regulation SBSR.

Under the rules, the SEC says it is recognizing the Global Legal Entity Identifier System as the system from which security-based swap counterparties must obtain codes to identify themselves when reporting security-based swap data. The rules also address the application of Regulation SBSR to cross-border security-based swap activity and include provisions to permit market participants to satisfy their obligations under Regulation SBSR through compliance with the comparable regulation of a foreign jurisdiction.

The proposed rule amendments would assign reporting duties for certain security-based swaps not addressed by the adopted rules, and would provide a compliance schedule for certain provisions of Regulation SBSR. They would also prohibit registered SDRs from charging fees to or imposing usage restrictions on the users of publicly disseminated security-based swap transaction data.

“We carefully considered comments received and the workability of the rules and rule proposal in the context of the existing CFTC regimes for swap data repositories, swap data reporting and public dissemination,” added Steve Luparello, director of the SEC’s Division of Trading and Markets. “Today’s measures are robust and appropriately tailored to the security-based swap market.”

The new rules will become effective 60 days after their impending publication in the Federal Register, but as written, persons or entities subject to the new rules governing the registration of SDRs typically have 365 days from the date of publication to comply.