Security-Based Swap Execution Facilities: SEC Proposes Rules on Registration of Security-Based Swap Execution Facilities

Sullivan & Cromwell LLP - March 21, 2011

On February 2, 2011, the Securities and Exchange Commission (the “SEC”) proposed Regulation SB SEF, which sets forth rules to govern the creation, registration and operation of security-based swap execution facilities (“SB SEFs”) under Section 763 of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”). A SB SEF is a regulated trading system or platform in which multiple participants have the ability to execute or trade security-based swaps (“SB Swaps”) by accepting bids and offers made by multiple participants in the facility. The SEC’s proposed rules are similar to, but differ in certain important respects from, the rules proposed by the Commodity Futures Trading Commission (the “CFTC”) in its release of January 7, 2011, regarding the regulation of swap execution facilities (“SEFs”) under Section 721(a) of the Dodd-Frank Act. The CFTC’s proposed regime for SEFs was the subject of a separate Memorandum to Clients. In particular, under the SEC proposal, a request for quote (“RFQ”) may be sent to as few as one market participant, but a SB SEF is required to publicly disseminate a “composite indicative quote” reflecting all responses to that request for quote. Comments are due on April 4, 2011.