The Securities and Exchange Commission (“SEC”) has proposed a rule governing the way in which certain security-based swap transactions are acknowledged and verified by the parties who enter into them. See Proposed Rule, 17 CFR Part 240 (January 14, 2011).
Proposed Rule
Under the proposed rule, security-based swap dealers and major security-based swap participants, collectively known as SBS entities, would be required to provide to their counterparties a trade acknowledgement detailing information specific to the transaction.
The new rule, Rule 15Fi-1, gives the SEC the authority to establish standards for the confirmation and documentation of security-based swap transactions entered into by SBS entities. The proposed rule would require SBS entities to provide their counterparties with an electronic record containing information specific to the security-based swap transaction.
In particular, it would require an SBS entity to:
Provide a trade acknowledgment to its counterparty in a security-based swap transaction within 15 minutes, 30 minutes or 24 hours of execution, depending on whether the transaction is executed or processed electronically.
Electronically process security-based swap transactions if the SBS Entity has the ability to do so.
Have written policies and procedures in place that are reasonably designed to obtain verification of the terms outlined in the trade acknowledgment.
In addition, the proposed rule would:
Specify which SBS entity is responsible for providing the trade acknowledgment.
Permit an SBS entity to satisfy the requirements of the proposed rule by processing the transaction through the facilities of a registered clearing agency.
Identify the transaction details that must be included in the trade acknowledgement.
Provide a limited exemption from the requirements of Rule 10b-10 under the Exchange Act for SBS Entities that are also brokers.
Public Comment
Public comments should be submitted to the SEC by February 14, 2011.
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Robert Kiggins, Esq. of McCarthy Fingar LLP, is author of the blog, and may be reached at (914) 385-1024 or rkiggins@mccarthyfingar.com.
