Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants: SEC Adopts Final Rules on Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants

Sullivan & Cromwell LLP - August 18, 2015
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On August 5, 2015, the Securities and Exchange Commission (“SEC”) adopted final rules on the procedures and requirements for registration of security-based swap dealers (“SBS Dealers”) and major security-based swap participants (“Major SBS Participants” and together with SBS Dealers, “SBS Entities”), as required by Section 764 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.   Under the final rules, in order to register, an SBS Entity must file the following with the SEC:
 

  • A completed application form including information about its business, management and ownership;
  • A certification from a senior officer of the SBS Entity certifying that the applicant has developed and implemented written policies and procedures reasonably designed to prevent violation of the federal securities laws and the rules thereunder and that such senior officer has documented the process by which he or she reached that determination; and
  • A certification to the effect that none of the personnel effecting or involved with effecting the SBS Entity’s security-based swap business is statutorily disqualified.
     
In the case of a non-resident SBS Entity, the application must also include a written irrevocable consent and power of attorney appointing an agent in the United States, a certification that such non-resident SBS entity can, as a matter of law, and will, provide the SEC with prompt access to books and records and submit to onsite inspection and examination by the SEC.  An opinion of counsel that the non-resident SBS Entity can, as a matter of law, provide the SEC with books and records and submit to onsite inspection and examination by the SEC is also required.

The final rules provide for three different forms of registration applications depending upon the regulatory status of the applicant:
 
  •  Form SBSE-BD for applicants registered with the SEC as broker-dealers (the SEC estimates that 16 entities in this category will register);
  • Form SBSE-A for applicants registered with the CFTC as swap dealers or major swap participants (the SEC estimates that 35 entities in this category will register); and
  • Form SBSE for entities not registered as broker-dealers, swap dealers or major swap participants (the SEC estimates that four entities in this category will register).
     
The final rules require SBS Entities to “conditionally” register prior to the effectiveness of the full suite of security-based swap rules.  Conditional registration would be granted upon the filing of a complete application, and on-going registration would become effective once registration is granted by the SEC.

The final rules will become effective on October 13, 2015, but SBS Entities will not be required to comply with registration requirements until the latest of:
 
  • six months after the date of publication in the Federal Register of a final rule release adopting rules establishing capital, margin and segregation requirements for SBS Entities;
  • the compliance date of final rules establishing recordkeeping and reporting requirements for SBS Entities;
  • the compliance date of final rules establishing business conduct requirements; and
  • the compliance date for final rules establishing a process for a registered SBS Entity to make an application to the SEC to allow an associated person who is subject to a statutory disqualification to effect or be involved in effecting security-based swaps on the SBS Entity’s behalf.
     
The date on which an entity must begin to calculate the amount of its security-based swap activity to determine whether it meets the numerical thresholds of an SBS Dealer or Major SBS Participant is two months prior to the registration deadline.  Thus, only security-based swap activity on or after that date will be used to determine whether an entity is required to be registered as an SBS Dealer or Major SBS Participant.