SEC Proposes Changes to Registration and Regulation of Security-Based Swap Execution Facilities

On April 6, 2022, the Securities and Exchange Commission (SEC) proposed Regulation SE to modify the registration and regulation of security-based swap execution facilities (SBSEFs). This proposal would fulfill a mandate issued under the Dodd-Frank Act of 2010 requiring the increased regulation of these SBSEFs, and increase transparency in the over-the-counter security market. The SEC has also withdrawn several previously proposed rules regarding the regulation of SBSEFs.

The proposal lays out 17 CFR 242.800 through 835 as steps for registration of SBSEFs with the SEC, and Form SBSEF, which would be used for registration. These rules include details of who needs to file, the processes and procedures for creating filings, and how to handle any cross-border or conflicts of interest which may arise.

There are 4 proposed regulatory changes:

1. Implement Section 765 of the Dodd-Frank Act: This Section will address conflicts of interest between SBSEFs and national security exchanges trading security-based swaps, which may include adding limits to voting rights.
2. Amend existing definition of exchange: Since most SBSEFs meet the current definition of exchange, they would have to register as both. This change would modify the existing definition of “exchange” within the Securities and Exchange Act of 1934 to exclude certain registered clearing agencies and registered SBSEFs that only buy and sell security-based swaps. 
3. Exempt SBSEFs from certain broker requirements: Under the current definition, SBSEFs meet the requirements as a broker and would have to register as both. This change would make registration as an SBSEF also constitute registration as a broker, while exempting them from certain broker requirements to avoid duplicate recordkeeping.
4. Allow for requests for reviews of SBSEFs: This change allows those who believe they have been wronged by the actions of an SBSEF to apply for a formal review by the SEC.

This proposal will be open for 60 days for public comment. These comments may be submitted electronically or via paper with the directions provided in the proposal. Contact our regulatory experts today to learn more about how we can help you with any of your SEC filing needs.