Securities Regulation Daily SEC amends in-house rules; adopts swap transaction reporting rules
Wednesday, July 13, 2016

SEC amends in-house rules; adopts swap transaction reporting rules

By Jacquelyn Lumb

The SEC unanimously adopted, without discussion, amendments to its administrative proceedings rules of practice to adjust the timing of hearings, allow for discovery depositions, and clarify the rules for admitting hearsay and the assertion of affirmative defenses. The Commission also amended Regulation SBSR.

Timing of hearing. Under the amended rules of practice, orders instituting proceedings will designate the time period for preparation of the decision as 30, 75 or 120 days from the completion of the post-hearing or dispositive motion briefing or a finding of default. The prehearing period is extended from four months to a maximum of 10 months for cases that are designated as 120-day proceedings; a maximum of six months for 75-day cases; and a maximum of four months for 30-day cases.

Depositions. Parties in 120-day proceedings will have the right to notice three depositions per side in single-respondent cases and five in multi-respondent cases. Each side may request an additional two depositions under an expedited procedure.

Response to allegations. Respondents will be required to disclose, in response to an order instituting proceedings, whether they plan to assert a reliance defense and whether they relied on the advice of counsel, accountants, auditors, or other professionals in connection with the claims, alleged violations, or remedies sought.

Dispositive motions. The amended rules will allow three types of dispositive motions at different stages of the proceeding and establish standards and procedures for each type of motion. Any evidence that is irrelevant, immaterial, unduly repetitious, or unreliable will be excluded. Hearsay may be allowed if it is deemed relevant, material, and reliable.

The amended rules also establish procedures for the service of the order instituting proceedings in foreign jurisdictions, for disclosures related to expert witnesses and any reports prepared by expert witnesses, and for appeals to the Commission.

Effective dates. The amendments are effective 60 days after publication in the Federal Register. They will apply to all proceedings initiated on or after that date. The rules also may apply to pending proceedings, depending on the phase of the proceeding.

Regulation SBSR. The amendments to Regulation SBSR address the remaining issues under Title VII of the Dodd-Frank Act relating to the framework for the regulatory reporting and public dissemination of security-based swap transaction information. SEC Chair Mary Jo White said the rules mark the last significant step in creating transparency around security-based swap transactions. Next in line for rulemaking is finalizing the dealer requirements, including capital, margin, asset segregation, recordkeeping, and statutory disqualification. White said the goal is to complete these regulations by the end of the year.

The final rules require national securities exchanges or security-based swap execution facilities to report security-based swaps that are executed on their platforms and that will be submitted to clearing. Registered clearing agencies must report any security-based swaps to which they are direct counterparties.

Registered swap data repositories are prohibited from charging fees or imposing usage restrictions on the data that is publicly disseminated under Regulation SBSR.

Any swap transactions connected to a non-U.S. person’s dealing activity that is arranged, negotiated, or executed by the non-U.S. person’s personnel that is located in a U.S. branch or office must be reported and publicly disseminated.

The final rules also include guidance with respect to the application of Regulation SBSR to security-based swaps resulting from prime brokerage arrangements and from the allocation of cleared security-based swaps.

Compliance dates. The compliance schedule has been revised from the initial proposal. Transaction reporting will not begin until after security-based swap dealers and major security-based swap participants have registered with the SEC.

Remaining Title VII rules. Both Commissioners Kara Stein and Michael Piwowar criticized the lack of action on the remaining Title VII rules. Piwowar said there was no excuse for not having finalized the rules. White assured the commissioners that she shared their desire to complete the rules as quickly as possible, and repeated her opening remarks that they are next in line.

MainStory: TopStory ClearanceSettlement Derivatives DoddFrankAct Enforcement ExchangesMarketRegulation RiskManagement SECNewsSpeeches Swaps

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