SEC and CFTC Adopt Product Definitions Under Title VII of Dodd-Frank: The SEC and CFTC Voted to Further Define “Swap”, “Security-Based Swap”, and “Security-Based Swap Agreement” and Finalize Related Requirements; CFTC Finalizes End-User Exception

Sullivan & Cromwell - July 11, 2012

The Securities Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”, jointly with the SEC, the “Commissions”) have approved joint final rules and interpretations that, among other things, further define “swap” and “security-based swap” and govern “mixed swaps”. The definitions of “swap,” “security-based swap” and “mixed swaps” will determine the applicability of many of the regulatory requirements imposed under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Although the release adopting the final rules (the “Product Final Release”) is not yet available, the SEC and CFTC have each released a fact sheet and the CFTC has released a Q&A, which discuss the Product Final Release selectively and at a high level (collectively, the “Product Fact Sheet”). Separately, the CFTC published a fact sheet and Q&A that discuss, again selectively and at a high level, the end-user exception to the clearing and platform execution requirements that will be applicable to certain swaps (collectively, the “End-User Fact Sheet”). Our memorandum reflects (and is limited to) the information made available in the Product Fact Sheet and the End-User Fact Sheet, with a focus on how the two relevant rulemakings appear to have evolved since being proposed. We will supplement this memorandum with a more comprehensive memorandum after the Product Final Release is made available.