Securities Regulation Daily Final SEC rules require trade acknowledgement, verification for security-based swaps
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Wednesday, June 8, 2016

Final SEC rules require trade acknowledgement, verification for security-based swaps

By Anne Sherry, J.D.

The SEC continued progress on its security-based swap rulemaking by adopting final trade acknowledgement and verification requirements. New Exchange Act Rules 15Fi-1 and 15Fi-2 apply to SBS dealers and major SBS participants. The Commission also amended Exchange Act Rule 3a71-6 to allow substituted compliance for trade acknowledgement (Release No. 34-78011, June 8, 2016).

Trade acknowledgement and verification. Dodd-Frank required the SEC to develop a comprehensive regulatory framework for security-based swaps. The latest rules require SBS entities to provide an electronic trade acknowledgement to their counterparties promptly, and no later than the end of the next business day. The SBS entity must promptly verify or dispute the terms of any trade acknowledgement it receives. Finally, it must put into place written policies and procedures reasonably designed to obtain verification of the terms outlined in any trade acknowledgement that it provides.

Exemptions. The rules exempt certain transactions processed through a registered clearing agency or executed on an SBS execution facility or national securities exchange. Broker-dealers that are SBS entities and that satisfy the rules' requirements are exempt from the requirements of Exchange Act Rule 10b-10. Chair Mary Jo White said that the rules will improve SBS documentation, "a cornerstone of effective risk management."

Compliance date. Because the new rules only apply to registered SBS entities, the SEC aligned the compliance date with that of the registration rules. That date is the later of: 1) six months after the date of publication in the Federal Register of final rules establishing capital, margin, and segregation requirements for SBS entities; 2) the compliance date of final rules establishing recordkeeping and reporting requirements for SBS entities; 3) the compliance date of final rules establishing business conduct requirements under 1934 Act Sections 15F(h) and 15F(k), or 4) the compliance date for final rules establishing a process for a registered SBS entity to make an application to the SEC allow an associated person who is subject to a statutory disqualification to effect security-based swaps on the SBS entity’s behalf.

Substituted compliance. The SEC also revised its existing rule on substituted compliance by non-U.S. security-based swap entities. Rule 3a71-6 allows such entities to satisfy applicable business conduct requirements by complying with comparable foreign regulatory requirements. The amendment extends that relief to the trade acknowledgement and verification requirements.

The release is No. 34-78011.

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