Corporate Governance

SEC Seeks Comment on Proposed Dodd-Frank Swaps Rules

By Marie L. Oliver

As we described earlier this year, the Dodd-Frank Wall Street Reform and Consumer Protection Act provided the Securities and Exchange Commission with authority to regulate certain derivative contracts called security-based swaps.  The Dodd-Frank Act requires that most security-based swaps be cleared through a clearing agency, unless an exception applies.  The anticipated benefit of the ?clearing? process is the reduced risk of systemic harm when a party fails to meet its obligations in these swaps.

On December 15, 2010, the SEC released newly proposed rules to implement this provision of the Dodd-Frank Act.  The first set of rules establishes the process by which a clearing agency submits information to the SEC about security-based swaps that the agency plans to accept for clearing, creates a procedure for the SEC to stay the clearing requirement in certain cases, and requires a clearing agency to give advance notice to the SEC before changing rules that could affect the nature or level of risk presented by the agency.

The second set of rules concerns the exception to the mandatory clearing requirement for so-called ?end users? ? companies that use derivatives to hedge risk.  The proposed rules would require companies pursuing the end-user exception to send information to the SEC about how it will meet its financial obligations in the exempt swap.  The SEC is also considering whether to allow small financial institutions to use the end user clearing exception, and how narrowly or broadly to structure such an exemption.

Public comments may be submitted to the SEC regarding the clearing agency review process, end user exception, and small bank exemption.

Full post as published by PomTalk on December 20, 2010 (boomark / email).