Security-Based Swap Reporting Proposals Under Title VII of the Dodd-Frank Act: SEC Proposes Regulation SBSR regarding Reporting and Dissemination of Security-Based Swap Information

Sullivan & Cromwell LLP - December 1, 2010

The SEC has proposed Rules 900 through 911 (“Regulation SBSR”) under the Securities Exchange Act of 1934 (the “Exchange Act”). Proposed Regulation SBSR, which relates to the reporting and public dissemination of security-based swap (“SBS”) transaction, volume and pricing information, was issued pursuant to Sections 763 and 766 of Title VII of the Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Regulation SBSR would require reporting to registered security-based swap data repositories (“SDRs”) of three categories of information: (1) specified information, to be reported in real time (generally defined as less than 15 minutes) and disseminated to the public immediately; (2) additional information, to be reported within specified times, but not to be publicly disseminated; and (3) updates needed due to a change to previously reported information. SBS transactions between affiliates would be subject to these reporting requirements, although the SEC indicates that in certain cases they could be identified as “off-market” transactions. For block trades, public dissemination of the notional size would be subject to a delay of between 8 and 26 hours. However, a SBS designed to offer the risks and returns of the equity securities on which the SBS is based would not be treated as a block trade, regardless of its notional amount.

SBS Dealers and Major SBS Participants would be required to establish and maintain policies and procedures reasonably designed to ensure compliance with their reporting obligations.

Full compliance with the reporting and public dissemination obligations would be phased in, at the earliest, 6 to 18 months after the effective date of Regulation SBSR.

The Commodity Futures Trading Commission has proposed rules addressing reporting and public dissemination of information relating to swaps. Those proposed rules will be discussed by us in a separate memorandum.

In another release issued by the SEC together with proposed Regulation SBSR, the SEC proposed Rules 13n-1 through 13n-11 (the “SDR Rules”). The SDR Rules, which are not described herein, address SDR registration, duties and core principles (including the mitigation of possible conflicts of interest).