
[Federal Register Volume 76, Number 132 (Monday, July 11, 2011)]
[Rules and Regulations]
[Pages 40605-40612]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17039]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 240 and 260

[Release Nos. 33-9231; 34-64794; 39-2475; File No. S7-26-11]
RIN 3235-AL17


Exemptions for Security-Based Swaps

AGENCY: Securities and Exchange Commission.

ACTION: Interim final rules; request for comments.

-----------------------------------------------------------------------

SUMMARY: We are adopting interim final rules providing exemptions under 
the Securities Act of 1933, the Securities Exchange Act of 1934, and 
the Trust Indenture Act of 1939 for those security-based swaps that 
under current law are security-based swap agreements and will be 
defined as ``securities'' under the Securities Act and the Exchange Act 
as of July 16, 2011 due solely to the provisions of Title VII of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act. The interim 
final rules will exempt offers and sales of these security-based swaps 
from all provisions of the Securities Act, other than the Section 17(a) 
anti-fraud provisions, as well as exempt these security-based swaps 
from Exchange Act registration requirements and from the provisions of 
the Trust Indenture Act, provided certain conditions are met. The 
interim final rules will remain in effect until the compliance date for 
final rules that we may adopt further defining the terms ``security-
based swap'' and ``eligible contract participant.''

DATES: Effective Date: The interim final rules are effective July 11, 
2011 Comments should be received on or before August 15, 2011.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/interim-final-temp.shtml);
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number S7-26-11 on the subject line; or
     Use the Federal Rulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-26-11. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. We will post all comments on the Commission's Internet Web site 
(http://www.sec.gov/rules/interim-final-temp.shtml). Comments also are 
available for public inspection and copying in the Commission's Public 
Reference Room, 100 F Street, NE., Washington, DC 20549, on official 
business days between the hours of 10 a.m. and 3 p.m. All comments 
received will be posted without change; we do not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Andrew Schoeffler, Special Counsel, 
Office of Capital Market Trends, Division of Corporation Finance, at 
(202) 551-3860, U.S. Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are adopting interim final Rule 240 under 
the Securities Act of 1933 (``Securities Act''),\1\ interim final Rule 
12a-11 and Rule 12h-1(i) under the Securities Exchange Act of 1934 
(``Exchange Act''),\2\ and interim final Rule 4d-12 under the Trust 
Indenture Act of 1939 (``Trust Indenture Act'').\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 77a et seq.
    \2\ 15 U.S.C. 78a et seq.
    \3\ 15 U.S.C. 77aaa et seq.
---------------------------------------------------------------------------

I. Background

    On July 21, 2010, President Barack Obama signed the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (``Dodd-Frank Act'') into 
law.\4\ The Dodd-Frank Act was enacted, among other reasons, to promote 
the financial stability of the United States by improving 
accountability and transparency in the financial system.\5\ The recent 
financial crisis demonstrated the need for enhanced regulation of the 
over-the-counter (``OTC'') derivatives markets, which have experienced 
dramatic growth in recent years \6\ and are capable of affecting 
significant sectors of the U.S. economy.\7\ Title VII of the Dodd-Frank 
Act (``Title VII'') establishes a regulatory regime applicable to the 
OTC derivatives markets by providing the Securities and Exchange 
Commission (``Commission'' or ``we'') and the Commodity Futures Trading 
Commission (``CFTC'') with the tools to oversee these heretofore 
largely unregulated markets. Title VII provides that the CFTC will 
regulate ``swaps,'' the Commission will regulate ``security-based 
swaps,'' and the CFTC and the Commission will jointly regulate ``mixed 
swaps.'' \8\
---------------------------------------------------------------------------

    \4\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \5\ See, e.g., Public Law 111-203, Preamble.
    \6\ From their beginnings in the early 1980s, the notional value 
of these markets has grown to almost $600 trillion globally. See 
Monetary and Econ. Dep't, Bank for Int'l Settlements, Triennial and 
Semiannual Surveys--Positions in Global Over-the-Counter (OTC) 
Derivatives Markets at End-June 2010 (Nov. 2010), available at 
http://www.bis.org/publ/otc_hy1011.pdf.
    \7\ See 156 Cong. Rec. S5878 (daily ed. July 15, 2010) 
(statement of Sen. Dodd).
    \8\ Section 712(d) of the Dodd-Frank Act provides that the 
Commission and the CFTC, in consultation with the Board of Governors 
of the Federal Reserve System, shall further define the terms 
``swap,'' ``security-based swap,'' ``swap dealer,'' ``security-based 
swap dealer,'' ``major security-based swap participant,'' ``eligible 
contract participant,'' and ``security-based swap agreement.'' These 
terms are defined in sections 721 and 761 of the Dodd-Frank Act and 
the Commission and the CFTC have proposed to further define these 
terms in proposed joint rulemaking. See Further Definition of ``Swap 
Dealer,'' ``Security-Based Swap Dealer,'' ``Major Swap 
Participant,'' ``Major Security-Based Swap Participant'' and 
``Eligible Contract Participant'', Release No. 34-63452 (Dec. 7, 
2010), 75 FR 80174 (Dec. 21, 2010)(``SBS Participant Definition 
Proposing Release''); and Further Definition of ``Swap,'' 
``Security-Based Swap,'' and ``Security-Based Swap Agreement''; 
Mixed Swaps; Security-Based Swap Agreement Recordkeeping, Release 
No. 33-9204 (Apr. 29, 2011), 76 FR 29818 (May 23, 2011), corrected 
in Release No. 33-9204A (June 1, 2011), 76 FR 32880 (June 7, 
2011)(``SBS Product Definition Proposing Release'').
---------------------------------------------------------------------------

    Title VII amends the Securities Act and the Exchange Act to 
substantially expand the regulation of the security-based swap markets, 
establishing a new regulatory framework within which such markets can 
continue to evolve in a more transparent, efficient, fair, accessible, 
and competitive manner.\9\ The Title VII amendments to the Exchange Act 
impose, among other requirements, the following: (1) Registration and 
comprehensive oversight of security-based swap dealers

[[Page 40606]]

and major security-based swap participants; \10\ (2) reporting of 
security-based swaps to a registered security-based swap data 
repository, to the Commission, and to the public; \11\ (3) clearing of 
security-based swaps through a registered clearing agency or through a 
clearing agency that is exempt from registration \12\ if such security-
based swaps are of a type that the Commission determines is required to 
be cleared, unless an exemption or exception from such mandatory 
clearing applies; \13\ and (4) if a security-based swap is subject to 
the clearing requirement,\14\ execution of the security-based swap 
transaction on an exchange, on a security-based swap execution facility 
(``security-based SEF'') registered under the Exchange Act,\15\ or on a 
security-based SEF that has been exempted from registration by the 
Commission under the Exchange Act,\16\ unless no security-based SEF or 
exchange makes such security-based swap available for trading.\17\ 
Title VII also amends the Securities Act and the Exchange Act to 
include ``security-based swaps'' in the definition of ``security'' for 
purposes of those statutes.\18\ As a result, ``security-based swaps'' 
will be subject to the provisions of the Securities Act and the 
Exchange Act and the rules thereunder applicable to ``securities.''
---------------------------------------------------------------------------

    \9\ See generally subtitle B of Title VII.
    \10\ See section 15F of the Exchange Act, 15 U.S.C. 78o-10.
    \11\ See section 3(a)(75) of the Exchange Act, 15 U.S.C. 
78c(a)(75) (defining the term ``security-based swap data 
repository''). See also Security-Based Swap Data Repository 
Registration, Duties, and Core Principles, Release No. 34-63347 
(Nov. 19, 2010), 75 FR 77306 (Dec. 10, 2010); corrected at 75 FR 
79320 (Dec. 20, 2010) and 76 FR 2287 (Jan. 13, 2011)(proposed 
rules); and Regulation SBSR--Reporting and Dissemination of 
Security-Based Swap Information, Release No. 34-63346 (Nov. 19, 
2010), 75 FR 75208 (Dec. 2, 2010) (proposed rules).
    \12\ See subparagraphs (i) and (j) to Section 17A of the 
Exchange Act, 15 U.S.C. 78q-1. See also Clearing Agency Standards 
for Operation and Governance, Release No. 34-64017 (Mar. 3, 2011), 
76 FR 14472 (Mar. 16, 2011)(proposed rules).
    \13\ See section 3C(a)(1) of the Exchange Act, 15 U.S.C. 78c-
3(a)(1). See also Process for Submissions for Review of Security-
Based Swaps for Mandatory Clearing and Notice Filing Requirements 
for Clearing Agencies; Technical Amendments to Rule 19b-4 and Form 
19b-4 Applicable to All Self-Regulatory Organizations, Release No. 
34-63557 (Dec. 15, 2010), 75 FR 82490 (Dec. 30, 2010)(proposed 
rules).
    \14\ See section 3C(g) of the Exchange Act, 15 U.S.C. 78c-3(g) 
(providing an exception to the clearing requirement for certain 
persons).
    \15\ 15 U.S.C. 78c-4.
    \16\ 15 U.S.C. 78c-4(e).
    \17\ See section 3C(g) of the Exchange Act, 15 U.S.C. 78c-3(g). 
See section 3C(h) of the Exchange Act, 15 U.S.C. 78c-3(h). See also 
section 3(a)(77) of the Exchange Act, 15 U.S.C. 78c(77) (defining 
the term ``security-based swap execution facility''). See also 
Registration and Regulation of Security-Based Swap Execution 
Facilities, Release No. 34-63825 (Feb. 2, 2011), 76 FR 10948 (Feb. 
28, 2011)(``Security-Based SEF Proposing Release'').
    \18\ See sections 761(a)(2) and 768(a)(1) of the Dodd-Frank Act 
(amending sections 3(a)(10) of the Exchange Act, 15 U.S.C. 
78c(a)(10), and 2(a)(1) of the Securities Act, 15 U.S.C. 77b(a)(1), 
respectively).
---------------------------------------------------------------------------

    The provisions of Title VII generally are effective on July 16, 
2011 (360 days after enactment of the Dodd-Frank Act, the ``Effective 
Date''), unless a provision requires a rulemaking. Specifically, if a 
Title VII provision requires a rulemaking, it will go into effect ``not 
less than'' 60 days after publication of the related final rule or on 
July 16, 2011, whichever is later.\19\ We do not expect to complete all 
of the rulemaking we are directed to carry out pursuant to the 
provisions of Title VII prior to the Effective Date.
---------------------------------------------------------------------------

    \19\ See Section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note. 
As we noted in our recent Order Pursuant to Sections 15F(b)(6) and 
36 of the Securities Exchange Act of 1934 Granting Temporary 
Exemptions and Other Temporary Relief, Together with Information on 
Compliance Dates for New Provisions of the Securities Exchange Act 
of 1934 Applicable to Security-Based Swaps, and Request for Comment, 
Release No. 34-64678 (June 15, 2011)(``Effective Date Order''), the 
effective date of certain provisions or requirements may require 
other Commission actions before the parties can comply with mandated 
obligations.
---------------------------------------------------------------------------

    We have proposed to further define and provide guidance regarding 
the terms ``security-based swap'' \20\ and ``eligible contract 
participant.'' \21\ These proposed rules are among the rulemakings that 
will not be adopted by the Effective Date. We recognize that until we 
further define such terms, market participants may be uncertain as to 
how to comply with the applicable registration requirements of the 
Securities Act, the registration requirements of the Exchange Act 
applicable to classes of securities, and the indenture provisions of 
the Trust Indenture Act. In that regard, a number of commenters 
recently have raised concerns about potential uncertainty regarding the 
definitions of ``security-based swap'' and ``eligible contract 
participant'' and the related proposed rulemakings.\22\ As part of our 
recent action providing guidance as to which of the requirements of 
Title VII will apply to security-based swap transactions as of the 
Effective Date and granting temporary relief to market participants 
from compliance with certain of these requirements, we granted certain 
temporary exemptions relating to security-based swap transactions with 
persons who are eligible contract participants as that term is defined 
today and relating to the operation of trading platforms for security-
based swaps.\23\ The exemption relating to eligible contract 
participants will allow persons currently participating in the 
security-based swap markets, who could potentially be considered non-
eligible contract participants under the definition of ``eligible 
contract participant'' as amended by Title VII, to continue to do so 
until the term ``eligible contract participant'' is further defined in 
final rulemaking.\24\ We also provided a temporary exemption to allow 
an entity that trades security-based swaps and is not currently 
registered as a national securities exchange or that cannot yet 
register as a security-based SEF because final rules for such 
registration have not yet been adopted, to continue trading security-
based swaps during this temporary period without registering as a 
national securities exchange or security-based SEF.\25\
---------------------------------------------------------------------------

    \20\ See SBS Product Definition Proposing Release, supra note 8.
    \21\ See SBS Participant Definition Proposing Release, supra 
note 8. The term ``eligible contract participant'' currently is 
defined in Section 1a(12) of the Commodity Exchange Act (7 U.S.C. 
1a(12)). For purposes of transactions in security-based swap 
agreements, ``eligible contract participant'' is defined by 
reference to such section as in effect on the date of enactment of 
the Commodity Futures Modernization Act (Public Law 106-554, 114 
Stat. 2763 (2000)) and does not include any person determined by the 
CFTC to be an eligible contract participant pursuant to their 
authority in Section 1a(12)(C) of the Commodity Exchange Act (7 
U.S.C. 1a(12)). Title VII amended the definition of ``eligible 
contract participant'' to narrow in some respects the definition of 
eligible contract participant in Section 1a(12). See footnote 38, 
supra.
    \22\ See, e.g., Letter from American Bankers Association, 
Financial Services Roundtable, Futures Industry Association, 
Institute of International Bankers, International Swaps and 
Derivatives Association, Investment Company Institute, Securities 
Industry and Financial Markets Association, U.S. Chamber of Commerce 
(June 10, 2011)(``Trade Association Letter''). (``The definition of 
[eligible contract participant] was amended by [the Dodd-Frank Act], 
and the [Commission and the CFTC] have sought comments in [the SBS 
Participant Definition Proposing Release] on how to further define 
such term, including how to interpret the phrase ``discretionary 
basis.'' Until the term [eligible contract participant] is further 
defined in a final rulemaking, market participants will not know 
whether they are dealing with an [eligible contract participant], 
and where the line is between their institutional and retail 
businesses. As a result, they will not know * * * whether certain 
transactions are subject to the new requirement for [non-eligible 
contract participant] transactions to be executed on an exchange. * 
* * As a result, market participants may cease or severely limit 
their business with counterparties that could potentially be 
considered [non-eligible contract participants] under the Dodd-Frank 
statutory definition of [eligible contract participant].'').
    \23\ See Effective Date Order, supra note19.
    \24\ See Id.
    \25\ See Id.
---------------------------------------------------------------------------

    In addition to the matters addressed in our recent action, we 
understand that there are other implications for security-based swaps 
under the Securities Act, other provisions of the Exchange Act,

[[Page 40607]]

and the Trust Indenture Act. As we note, we have received comments 
expressing concern regarding the implications of including security-
based swaps in the definition of ``security.'' Commenters have 
indicated that they are still analyzing the full implications of such 
expansion of the definition of ``security,'' but that it will take 
time. Market participants therefore have requested temporary relief 
from certain provisions of the Securities Act and the Exchange Act so 
that parties may complete their analysis and submit requests for more 
targeted relief.\26\
---------------------------------------------------------------------------

    \26\ See Trade Association Letter, supra note 22.
---------------------------------------------------------------------------

    While we recently proposed exemptions under the Securities Act, the 
Exchange Act and the Trust Indenture Act for security-based swaps 
issued by certain clearing agencies in their function as central 
counterparties (CCP) under certain conditions (the ``Proposed SBS 
Exemptions'') \27\ and also recently extended our temporary rules that 
provided certain exemptions under the Securities Act, the Exchange Act 
and the Trust Indenture Act for cleared credit default swaps (the 
``Temporary CDS Rules''),\28\ these exemptions would not apply to 
transactions in security-based swaps, including credit default swaps, 
not involving a clearing agency. We also note that while the Temporary 
CDS Rules will be in place on the Effective Date, the Proposed SBS 
exemptions will not.
---------------------------------------------------------------------------

    \27\ See Exemptions For Security-Based Swaps Issued By Certain 
Clearing Agencies, Release No. 33-9222 (June 9, 2011), 76 FR 34920 
(June 15, 2011) (``SBS Exemptions Proposing Release''). The proposed 
exemptions would exempt transactions by clearing agencies in 
security-based swaps from all provisions of the Securities Act, 
other than the Section 17(a) anti-fraud provisions, as well as 
exempt these security-based swaps from Exchange Act registration 
requirements and from the provisions of the Trust Indenture Act, 
provided certain conditions are met.
    \28\ See Temporary Exemptions for Eligible Credit Default Swaps 
to Facilitate Operation of Central Counterparties to Clear and 
Settle Credit Default Swaps, Release No. 33-8999 (Jan. 14, 2009), 74 
FR 3967 (Jan. 22, 2009); Extension of Temporary Exemptions for 
Eligible Credit Default Swaps to Facilitate Operation of Central 
Counterparties to Clear and Settle Credit Default Swaps, Release No. 
33-9063 (Sep. 14, 2009), 74 FR 47719 (Sep. 17, 2009); and Extension 
of Temporary Exemptions for Eligible Credit Default Swaps to 
Facilitate Operation of Central Counterparties to Clear and Settle 
Credit Default Swaps, Release No. 33-9158 (Nov. 19, 2010), 75 FR 
72660 (Nov. 26, 2010).
---------------------------------------------------------------------------

    As a result, because security-based swaps will become securities on 
the Effective Date, absent the action we take in this release, 
counterparties entering into transactions in security-based swaps that 
are not within the scope of the Temporary CDS Rules will either need to 
rely on other available exemptions from the requirements of the 
Securities Act, the Exchange Act, and, if applicable, the Trust 
Indenture Act, or to consider whether to register such transactions or 
class of security.\29\
---------------------------------------------------------------------------

    \29\ See SBS Exemptions Proposing Release, supra note 27.
---------------------------------------------------------------------------

    We note that under current law, certain security-based swaps--
specifically those within the pre-Dodd-Frank Act definition of 
``security-based swap agreement'' entered into between eligible 
contract participants and subject to individual negotiation--are 
outside the scope of the federal securities laws, other than the anti-
fraud and certain other provisions.\30\ Up until now, these security-
based swaps have been traded or otherwise transacted without concerns 
about complying with the registration requirements of the Securities 
Act, the registration requirements of the Exchange Act applicable to 
classes of securities, or the indenture provisions of the Trust 
Indenture Act. We understand that there are several types of trading 
platforms currently being used to effect transactions in security-based 
swaps that would likely register as security-based SEFs,\31\ and that 
this activity would continue after the Effective Date.\32\ We 
understand that if parties continue to engage in the same types of 
trading activities after the Effective Date that they may be engaging 
in currently with respect to security-based swap agreements that may be 
security-based swaps on the Effective Date, such activities may raise 
concerns about the availability of an exemption from the registration 
requirements of the Securities Act, such as the private placement 
exemption in Securities Act Section 4(2).\33\
---------------------------------------------------------------------------

    \30\ See Section 2A of the Securities Act (15 U.S.C. 77b(b)-1) 
and Section 3A of the Exchange Act (15 U.S.C. 78c-1). The definition 
of ``security-based swap agreement'' includes the definition of 
``swap agreement,'' which requires that the agreement, contract or 
transaction be ``subject to individual negotiation'' and be between 
eligible contract participants.
    \31\ See Security-Based SEF Proposing Release, supra note 17. As 
we note above, we recently addressed certain issues relating to 
these trading platforms pending adoption of rules relating to 
security-based SEFs. See Effective Date Order, supra note 19.
    \32\ We requested comment on these issues in the SBS Exemptions 
Proposing Release. See SBS Exemptions Proposing Release, supra note 
27.
    \33\ 15 U.S.C. 77d(2). Section 4(2) provides an exemption from 
registration for transactions by an issuer not involving any public 
offering.
---------------------------------------------------------------------------

    We have recognized that implementation of the Title VII provisions 
raises issues in a number of contexts. As we noted in our recent 
action, in furtherance of the Dodd-Frank Act's stated objective of 
promoting financial stability in the U.S. financial system, we intend 
to move forward expeditiously with the implementation of the new 
security-based swap requirements in an efficient manner, while 
minimizing unnecessary disruption and costs to the markets.\34\ We 
recognize that many market participants will find compliance with Title 
VII to be a substantial undertaking. Security-based swap markets 
already exist, are global in scope, and have generally grown in the 
absence of regulation in the United States and elsewhere. In addition, 
the security-based swap markets are interconnected with other financial 
markets, including the traditional securities markets. In order to 
comply with Title VII provisions and related rules, we recognize that 
market participants will need additional time to acquire and configure 
necessary systems or to modify existing practices and systems, engage 
and train necessary staff, and develop and implement necessary policies 
and procedures. Furthermore, some of these changes cannot be undertaken 
until certain rules are finalized.
---------------------------------------------------------------------------

    \34\ See Effective Date Order, supra note 19.
---------------------------------------------------------------------------

    We are concerned about disrupting the operation of the security-
based swap markets until the compliance date for final rules that we 
may adopt further defining the terms ``security-based swap'' and 
``eligible contract participant.'' In our view, it is appropriate to 
permit those security-based swap transactions that, prior to the 
Effective Date, would be transactions in security-based swap agreements 
between eligible contract participants (and, therefore, not subject to 
the registration requirements of the Securities Act, the registration 
requirements of the Exchange Act applicable to classes of securities, 
and the indenture provisions of the Trust Indenture Act) to continue to 
be entered into as they are today until the compliance date for such 
final rules. Thus, we believe that it is necessary and appropriate in 
the public interest and consistent with the protection of investors, 
pending the compliance date for final rules that we may adopt further 
defining the terms ``security-based swap'' and ``eligible contract 
participant,'' to provide interim exemptions from all provisions of the 
Securities Act (other than the Section 17(a) antifraud provisions), the 
registration requirements of the Exchange Act relating to classes of 
securities, and the indenture provisions of the Trust Indenture Act for 
those security-based swaps that would have been, prior to the Effective 
Date, within the definition of ``security-based swap

[[Page 40608]]

agreement'' under Securities Act Section 2A \35\ and Exchange Act 
Section 3A \36\ and are entered into solely between eligible contract 
participants (as defined prior to the Effective Date).
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 77b(b)-1.
    \36\ 15 U.S.C. 78c-1.
---------------------------------------------------------------------------

II. Discussion of the Interim Final Rules

    We are adopting interim final rules to provide certain conditional 
exemptions under the Securities Act, the Exchange Act and the Trust 
Indenture Act.

A. Securities Act Rule 240

    We are adopting interim final Securities Act Rule 240 to exempt 
from all provisions of the Securities Act, except the anti-fraud 
provisions of Section 17(a), subject to certain conditions, the offer 
or sale of those security-based swaps that under current law are 
security-based swap agreements (which under that definition must be 
entered into between eligible contract participants and subject to 
individual negotiation) and that will be defined as ``securities'' 
under the Securities Act on the Effective Date due solely to the 
provisions of Title VII. Securities Act Rule 240 will permit the offer 
or sale of these security-based swaps between eligible contract 
participants without requiring compliance with Securities Act Section 
5.
    The definition of ``security-based swap'' in Title VII and 
``security-based swap agreement'' in Securities Act Section 2A are not 
identical.\37\ In addition, the amendments to the definition of 
``eligible contract participant'' in Title VII narrow in some respects 
the definition of ``eligible contract participant'' in the Commodity 
Exchange Act.\38\ In addition, we note that because certain persons may 
be eligible contract participants today but as a result of the narrower 
definition may no longer be eligible contract participants after the 
Effective Date, without an exemption, certain counterparties may not be 
able to offer or sell such security-based swaps without compliance with 
the registration requirements of the Securities Act.\39\ As a result of 
such differences, to avoid uncertainty as to the applicability of the 
Securities Act registration requirements pending the compliance date 
for final rules that we may adopt further defining the terms 
``security-based swap'' and ``eligible contract participant'' and to 
allow transactions between persons who are eligible contract 
participants today, we believe it is appropriate to provide an 
exemption that will allow market participants to continue to enter into 
transactions that come within the pre-Dodd-Frank Act definition of 
``security-based swap agreements.''
---------------------------------------------------------------------------

    \37\ See Section 2A of the Securities Act (15 U.S.C. 77b(b)-1).
    \38\ See Section 1a(12) of the Commodity Exchange Act (7 U.S.C. 
1a(12)) (prior to July 16, 2011) and Commodity Exchange Act Section 
1a(18) (as re-designated and amended by Section 721 of the Dodd-
Frank Act. See Public Law 111-203, Sec.  761(a) (adding Exchange Act 
Section 3(a)(65), which refers to the definition of eligible 
contract participant in the CEA). The definition of eligible 
contract participant contained in the Commodity Exchange Act (as 
amended by the Dodd-Frank Act) includes: financial institutions; 
insurance companies; investment companies; other entities and 
employee benefit plans; State and local municipal entities; market 
professionals, such as broker dealers, futures commission merchants, 
floor brokers, and investment advisors; and natural persons with a 
specified dollar amount invested on a discretionary basis. For 
purposes of the eligible contract participant definition after the 
Effective Date, certain of the entities, market professionals, and 
natural persons must meet certain conditions relating to the amount 
of assets or amount of monies invested on a discretionary basis. The 
Dodd-Frank Act amendments to the eligible contract participant 
definition increased the dollar threshold for certain persons and, 
with respect to natural persons, replaced a ``total assets'' test 
with an ``amounts invested on a discretionary basis'' test.
    \39\ See Public Law 111-203 Sec.  768(b) (adding Section 5(d) of 
the Securities Act). Under Section 5(d), no offers or sales of 
security-based swaps may be made to non-eligible contract 
participants unless there is an effective registration statement 
under the Securities Act covering transactions in such security-
based swap and any security-based swap transaction with a non-
eligible contract participant must be effected on a national 
securities exchange. In our Effective Date Order, we have provided 
an exemption, under certain circumstances, to allow transactions to 
continue with persons who today are eligible contract participants. 
See Effective Date Order, supra note 19.
---------------------------------------------------------------------------

    Under Securities Act Rule 240, a security-based swap will be exempt 
from the registration requirements of the Securities Act if it would 
have been a ``security-based swap agreement'' under the Securities Act 
prior to the Effective Date and is entered into between eligible 
contract participants (as that term was defined prior to the Effective 
Date).\40\ The purpose of these conditions is to allow those types of 
security-based swaps that were not defined as a ``security'' under the 
Securities Act prior to the Effective Date to continue to be transacted 
following the Effective Date until the compliance date for final rules 
that we may adopt further defining the terms ``security-based swap'' 
and ``eligible contract participant.'' \41\
---------------------------------------------------------------------------

    \40\ See 7 U.S.C. 1a(12). As we note above, the exemption 
applies only to those persons who are within the definition of 
``eligible contract participant'' contained in the definition of 
``swap agreement'' under Securities Act Section 2A. See 15 U.S.C. 
77b(b)-1 and Public Law 106-554, 114 Stat. 2763, 2763A-378 (2001).
    \41\ We note that the exemption will not cover credit-default 
swaps that are covered by the Temporary CDS Rules, as such cleared 
credit default swaps may not come within the definition of 
``security-based swap agreement'' because of the absence of the 
condition that they be subject to individual negotiation.
---------------------------------------------------------------------------

B. Exchange Act Rule 12a-11 and Rule 12h-1(i)

    We also are adopting two interim final rules relating to Exchange 
Act registration of security-based swaps. We are adopting interim final 
Exchange Act Rule 12a-11 to exempt any security-based swap offered and 
sold in reliance on Securities Act Rule 240 from the provisions of 
Exchange Act Section 12(a). As with our recent exemption affecting 
persons who are eligible contract participants, this exemption is 
intended to allow trading activities relating to those security-based 
swaps that under current law are security-based swap agreements with 
eligible contract participants to continue, provided the parties rely 
on the Rule 240 Securities Act exemption with respect to such security-
based swaps. We also are adopting an interim final amendment to 
Exchange Act Rule 12h-1 to exempt any security-based swap offered and 
sold in reliance on Securities Act Rule 240 from the provisions of 
Exchange Act Section 12(g). While we do not know whether there will be 
a class of security-based swaps that otherwise would satisfy the 
registration threshold under Exchange Act Section 12(g), we believe it 
is appropriate to provide this exemption while we continue to learn 
about and evaluate the type of security-based swap transactions that 
have been and will be transacted.

C. Trust Indenture Act Rule 4d-12

    We are adopting an interim final rule under Trust Indenture Act 
Section 304(d) that will exempt any security-based swap offered or sold 
in reliance on Securities Act Rule 240 from having to comply with the 
provisions of the Trust Indenture Act. We believe an exemption from the 
Trust Indenture Act is appropriate in this situation.
    The Trust Indenture Act is aimed at addressing problems that 
unregulated debt offerings pose for investors and the public, and 
provides a mechanism for debt holders to protect and enforce their 
rights with respect to the debt. We do not believe that the protections 
contained in the Trust Indenture Act are needed at this time to protect 
eligible contract participants to whom a sale of security-based swaps 
is made in reliance on Securities Act Rule 240. At this point, we 
believe that the identified problems that the Trust Indenture Act is 
intended to address do not occur in the offer and sale of these 
security-based swaps. For example, these security-based swaps are 
contracts between two

[[Page 40609]]

parties and, as a result, do not raise the same problem regarding the 
ability of parties to enforce their rights under the instruments as 
would, for example, a debt offering to the public. Moreover, 
enforcement of contractual rights and obligations under these security-
based swaps would occur directly between such parties, and it appears 
that the Trust Indenture Act provisions would not provide any 
additional meaningful substantive or procedural protections.
    Accordingly, due to the nature of those security-based swaps that 
may be sold in reliance on Securities Act Rule 240, we do not believe 
the protections contained in the Trust Indenture Act are currently 
needed with respect to those instruments. Therefore, we believe the 
exemption is necessary and appropriate in the public interest, 
consistent with the protection of investors and the purposes fairly 
intended by the Trust Indenture Act.

D. Request for Comment

    We request and encourage any interested person to submit comments 
regarding the interim final rules. In particular, we solicit comment on 
the following questions:
    1. How will the exemptions affect, if at all, the manner in which 
security-based swaps are transacted today and are expected to be 
transacted following the Effective Date?
    2. Will the counterparties to security-based swaps be able to rely 
on other available exemptions from registration under the Securities 
Act and the Exchange Act? If not, why? Is further guidance or rules 
needed in this regard? If so, what type of guidance or rules would be 
helpful?
    3. Are security-based swaps transacted today or expected to be 
transacted following the Effective Date in a manner that would not 
permit the parties to rely on existing exemptions under the Securities 
Act and the Exchange Act? If so, please explain in detail why existing 
exemptions would not be available.
    4. Should we consider additional exemptions under the Securities 
Act and the Exchange Act for security-based swaps traded on a national 
securities exchange or security-based SEF with eligible contract 
participants? Should an exemption from Exchange Act registration be 
provided if all holders of the class of security-based swap are 
eligible contract participants? Why or why not? What conditions to any 
such exemption would be appropriate, if any?
    5. Should we consider providing an exemption under the Securities 
Act that would allow a public offering of uncleared security-based 
swaps to eligible contract participants on a registered security-based 
SEF or national securities exchange? Why or why not? What conditions to 
any such exemption would be appropriate, if any?
    6. We are interested in understanding what type of security-based 
swaps might not be eligible for the interim final exemptions. Are there 
security-based swaps transactions today that would not be encompassed 
within the scope of the interim final exemptions and that should be 
covered?
    7. Do the interim final exemptions apply to all security-based 
swaps that should be exempted from the Securities Act, the Exchange Act 
and the Trust Indenture Act as of the Effective Date? If not, how 
should the interim final exemptions be revised such that these other 
security-based swaps would be included within the interim final 
exemptions?
    8. The interim final Securities Act exemption contains particular 
conditions. Should the Securities Act exemption in Securities Act Rule 
240 be conditioned in this manner? If not, why not?
    9. Are the exemptions from the Securities Act, the Exchange Act and 
the Trust Indenture Act appropriate? If not, why not? Should we take a 
different approach?

III. Transition and Expiration Date of Interim Final Rules

    The interim final rules will remain in effect until the compliance 
date for final rules that we may adopt further defining the terms 
``security-based swap'' and ``eligible contract participants.'' We 
anticipate that this term of the exemptions will provide us with time 
to evaluate the market for security-based swaps, and consider whether 
there are other exemptions that we should consider regarding security-
based swap transactions between eligible contract participants.
    Adoption of the interim final rules, which will be effective on 
July 11, 2011, will minimize disruptions and costs to the security-
based swap markets that could occur on the Effective Date as a result 
of the effectiveness of the definitions of ``security-based swap'' and 
``eligible contract participant'' on the Effective Date prior to the 
completion of rulemakings to further define these terms. We have 
included several requests for comment in this release. We will consider 
the public comments we receive in determining whether we should revise 
the interim final rules in any respect, as well as other actions we 
should take with respect to such exemptions.

IV. Other Matters

    The Administrative Procedure Act generally requires an agency to 
publish notice of a proposed rulemaking in the Federal Register.\42\ 
This requirement does not apply, however, if the agency ``for good 
cause finds * * * that notice and public procedure are impracticable, 
unnecessary, or contrary to the public interest.'' \43\ Further, the 
Administrative Procedure Act also generally requires that an agency 
publish an adopted rule in the Federal Register 30 days before it 
becomes effective.\44\ This requirement does not apply, however, if the 
agency finds good cause for making the rule effective sooner.\45\ We, 
for good cause, find that notice and solicitation of comment before 
adopting the new rules is impracticable, unnecessary, or contrary to 
the public interest.
---------------------------------------------------------------------------

    \42\ See 5 U.S.C. 553(b).
    \43\ Id.
    \44\ See 5 U.S.C. 553(d).
    \45\ Id.
---------------------------------------------------------------------------

    For the reasons we discussed throughout this release, we believe 
that we have good cause to act immediately to adopt the new rules on an 
interim final basis. The interim final rules are intended to minimize 
disruptions and costs to the security-based swap markets that could 
occur on the Effective Date as a result of the effectiveness of the 
definitions of ``security-based swap'' and ``eligible contract 
participant'' on the Effective Date prior to the completion of 
rulemakings to further define these terms. In addition, we had 
previously anticipated that additional exemptions would not be needed 
to preserve the status quo because we assumed that existing exemptions 
under the Securities Act would be available to participants in 
security-based swap transactions after the Effective Date. We have 
become aware, however, due to comments we have recently received, that 
there may be questions as to whether such exemptions may be available 
for all types of trading activities that may occur today involving 
instruments that will or may be encompassed in the definition of 
``security-based swap.'' \46\ Moreover, we have requested comment on 
trading activities in our recent SBS Exemption Proposing Release.\47\ 
We emphasize that we are requesting comments on the interim final rules 
and will carefully consider any comments that we receive in determining 
whether we should revise the interim final rules in any respect, as 
well as other actions we

[[Page 40610]]

should take with respect to such exemptions.
---------------------------------------------------------------------------

    \46\ See Trade Association Letter, supra note 22.
    \47\ See SBS Exemption Proposing Release, supra note 27.
---------------------------------------------------------------------------

    The interim final rules will remain in effect until the compliance 
date for final rules that we may adopt further defining the terms 
``security-based swap'' and ``eligible contract participant.'' We find 
that there is good cause to have the new rules effective as interim 
final rules and that notice and public procedure in advance of 
effectiveness of the interim final rules is impracticable, unnecessary 
and contrary to the public interest.\48\
---------------------------------------------------------------------------

    \48\ This finding also satisfies the requirements of 5 U.S.C. 
808(2), allowing the rule amendment to become effective 
notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency 
finds that notice and public comment are ``impractical, unnecessary 
or contrary to the public interest,'' a rule ``shall take effect at 
such time as the federal agency promulgating the rule determines'').
---------------------------------------------------------------------------

V. Paperwork Reduction Act

    The interim final rules do not impose any new ``collections of 
information'' within the meaning of the Paperwork Reduction Act of 1995 
(``PRA''),\49\ nor do they create any new filing, reporting, 
recordkeeping, or disclosure reporting requirements. Accordingly, we 
are not submitting the interim final rules to the Office of Management 
and Budget for review in accordance with the PRA.\50\ We request 
comment on whether our conclusion that there are no collections of 
information is correct.
---------------------------------------------------------------------------

    \49\ 44 U.S.C. 3501 et seq.
    \50\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

VI. Cost-Benefit Analysis

    We are adopting interim final rules that will provide exemptions 
for those security-based swaps that under current law are ``security-
based swap agreements'' between ``eligible contract participants'' 
(each as defined today) and that will be defined as ``securities'' 
under the Securities Act and the Exchange Act as of the Effective Date 
due solely to the provisions of Title VII. The interim final rules will 
exempt these security-based swaps from all provisions of the Securities 
Act, other than the Section 17(a) anti-fraud provisions, as well as 
exempt these security-based swaps from Exchange Act registration 
requirements and from the provisions of the Trust Indenture Act, 
provided certain conditions are met.

A. Benefits

    The interim final rules are intended to minimize disruptions and 
costs to the security-based swap markets that could occur on the 
Effective Date until the compliance date for final rules that we may 
adopt further defining the terms ``security-based swap'' and ``eligible 
contract participant.'' The purpose of the exemptions is to allow 
market participants to continue to enter into those security-based 
swaps that under current law are defined as security-based swap 
agreements as they do today without concern that such security-based 
swap transactions may not comply with the provisions of the Securities 
Act, the registration provisions of the Exchange Act applicable to a 
class of security-based swaps, or the indenture provisions of the Trust 
Indenture Act. The exemptions will minimize the uncertainty as to the 
applicability of the Securities Act, the Exchange Act and the Trust 
Indenture Act that could occur on the Effective Date with respect to 
those security-based swaps that under current law are defined as 
security-based swap agreements as a result of the effectiveness of the 
definitions of ``security-based swap'' and ``eligible contract 
participant'' on the Effective Date prior to the completion of 
rulemakings to further define these terms.
    Absent the exemptions, following the Effective Date, the offer and 
sale of those security-based swaps that under current law are defined 
as security-based swap agreements may have to be registered under the 
Securities Act, certain of those security-based swaps may have to be 
registered as a class under the Exchange Act, and the provisions of the 
Trust Indenture Act may need to be complied with. We believe that 
requiring compliance with these provisions likely would disrupt and 
impose unnecessary costs on this segment of the security-based swap 
markets. Absent the exemptions, we believe that certain market 
participants would incur additional costs due to compliance with the 
registration requirements of the Securities Act and the Exchange Act, 
as well as compliance with the provisions of the Trust Indenture Act. 
It also is possible that without the exemptions, a market participant 
may not continue to participate in these types of transactions if 
compliance with these provisions were infeasible (economically or 
otherwise).
    A market participant will benefit from the exemptions because it 
will not have to file a registration statement covering the offer and 
sale of these security-based swaps or evaluate the availability of 
another existing exemption from such registration requirements. If the 
market participant is not required to register the offer and sale of 
these security-based swaps, it will not have to incur the additional 
costs of such registration, including legal and accounting costs. The 
availability of the exemptions under the Securities Act, the Exchange 
Act, and the Trust Indenture Act also would mean that market 
participants would not incur the costs of preparing disclosure 
documents describing these security-based swaps and from preparing 
indentures and arranging for the services of a trustee.

B. Costs

    The interim final rules are exemptions, and thus do not impose new 
requirements on market participants. We recognize that a consequence of 
the exemptions would be the unavailability of certain remedies under 
the Securities Act and the Exchange Act and certain protections under 
the Trust Indenture Act for an interim period to the extent that any of 
these security-based swap transactions otherwise would be subject to 
the registration requirements of the Securities Act and the Exchange 
Act. Absent the exemptions, a market participant may have to file a 
registration statement covering the offer and sale of the security-
based swaps, may have to register the class of security-based swaps 
that it has issued under the Exchange Act, which would provide 
investors with civil remedies in addition to antifraud remedies, and 
may have to satisfy the applicable provisions of the Trust Indenture 
Act. A registration statement covering the offer and sale of security-
based swaps may provide certain information about the market 
participants, the security-based swap contract terms, and the 
identification of the particular reference securities, issuers, or 
loans underlying the security-based swap. As a result of the interim 
final rules, while an investor would be able to pursue an antifraud 
action in connection with the purchase and sale of security-based swaps 
under Exchange Act Section 10(b), it would not be able to pursue civil 
remedies under Securities Act Sections 11 or 12. We could still pursue 
an antifraud action in the offer and sale of security-based swaps under 
Securities Act Section 17(a).

VII. Consideration of Impact on the Economy, Burden on Competition and 
Promotion of Efficiency, Competition and Capital Formation

    Exchange Act Section 23(a)(2) \51\ requires us, when adopting rules 
under the Exchange Act, to consider the impact that any new rule would 
have on competition. Section 23(a)(2) prohibits us from adopting any 
rule that would impose a burden on competition not necessary or 
appropriate in furtherance

[[Page 40611]]

of the purposes of the Exchange Act. In addition, Securities Act 
Section 2(b) \52\ and Exchange Act Section 3(f) \53\ require us, when 
engaging in rulemaking where we are required to consider or determine 
whether an action is necessary or appropriate in the public interest, 
to also consider, in addition to the protection of investors, whether 
the action will promote efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \51\ 15 U.S.C. 78w(a)(2).
    \52\ 15 U.S.C. 77b(b).
    \53\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    We are adopting interim final rules that would provide exemptions 
under the Securities Act, the Exchange Act, and the Trust Indenture Act 
for those security-based swaps that under current law are security-
based swap agreements and will be defined as ``securities'' under the 
Securities Act and the Exchange Act as of the Effective Date due solely 
to the provisions of Title VII. Because these exemptions would maintain 
the status quo with respect to the ability of market participants to 
engage in transactions in these security-based swaps, we do not believe 
that our actions today will impose a burden on competition. We also 
believe that the interim final rules will promote efficiency by 
minimizing disruptions and costs to the security-based swap markets 
that could occur as a result of the effectiveness of the definitions of 
``security-based swap'' and ``eligible contract participant'' on the 
Effective Date prior to the completion of rulemakings to further define 
these terms. By allowing transactions in security-based swaps that 
under current law are security-based swap agreements to continue to be 
entered into between eligible contract participants as they are today 
until the compliance date for final rules that we may adopt further 
defining the terms ``security-based swap'' and ``eligible contract 
participant,'' and to the extent that such security-based swaps are 
used to hedge risks, including those related to the issuance of the 
referenced securities (as occurs with equity swaps and the issuance of 
convertible bonds, for example), the interim final rules will prevent 
potential impairment of the capital formation process.
    The Commission requests comment on all aspects of this analysis 
and, in particular, on whether the interim final rules will place a 
burden on competition, as well as the effect of the proposal on 
efficiency, competition, and capital formation. Commenters are 
requested to provide empirical data and other factual support for their 
views, if possible.

VIII. Regulatory Flexibility Act Certification

    The Commission hereby certifies that pursuant to 5 U.S.C. 605(b) 
that the interim final rules contained in this release will not have a 
significant economic impact on a substantial number of small 
entities.\54\ The interim final rules apply only to counterparties that 
may engage in security-based swap transactions in reliance on the 
interim final rule providing an exemption under the Securities Act. The 
interim final exemption under the Securities Act provides that the 
exemption is available only to security-based swaps that are entered 
into between eligible contract participants, as that term is defined in 
Section 1a(12) of the Commodity Exchange Act prior to the Effective 
Date, and other than with respect to persons determined by the CFTC to 
be eligible contract participants pursuant to Section 1a(12)(C) of the 
Commodity Exchange Act (7 U.S.C. 1a(12)). Based on our existing 
information about the participants in the security-based swap markets, 
the Commission believes that the interim final rules would apply to 
few, if any, small entities.\55\ For this reason, the interim final 
rules should not have a significant economic impact on a substantial 
number of small entities. We encourage written comments regarding this 
certification.
---------------------------------------------------------------------------

    \54\ See Securities Act Rule 157 (17 CFR 230.157), Exchange Act 
Rule 0-10(a) (17 CFR 240.0-10(a)) and Trust Indenture Act Rule 0-7 
(17 CFR 260.0-7).
    \55\ For example, as revealed in a current survey conducted by 
Office of the Comptroller of the Currency, 99.9% of credit default 
swap positions by U.S. Commercial Banks and Trusts are held by those 
with assets over $10 billion. See Office of the Comptroller of the 
Currency, ``Quarterly Report on Bank Trading and Derivatives 
Activities First Quarter 2011'' (2011).
---------------------------------------------------------------------------

IX. Statutory Authority and Text of the Rules and Amendments

    The rules described in this release are being adopted under the 
authority set forth in Sections 19 and 28 of the Securities Act; 
Sections 12(h), 23(a) and 36 of the Exchange Act; and Section 304(d) of 
the Trust Indenture Act.

List of Subjects in 17 CFR Parts 230, 240 and 260

    Reporting and recordkeeping requirements, Securities.

Text of the Rules and Amendments

    For the reasons set out in the preamble, the Commission amends 
Title 17, Chapter II, of the Code of Federal Regulations as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The authority citation for part 230 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, 
unless otherwise noted.
* * * * *

0
2. Section 230.240 is added to read as follows:


Sec.  230.240  Exemption for certain security-based swaps.

    (a) Except as expressly provided in paragraph (b) of this section, 
the Act does not apply to the offer or sale of any security-based swap 
that is:
    (1) A security-based swap agreement, as defined in Section 2A of 
the Act (15 U.S.C. 77b(b)-1) as in effect prior to July 16, 2011; and
    (2) Entered into between eligible contract participants (as defined 
in Section 1a(12) of the Commodity Exchange Act (7 U.S.C. 1a(12)) as in 
effect prior to July 16, 2011, other than a person who is an eligible 
contract participant under Section 1a(12)(C) of the Commodity Exchange 
Act as in effect prior to July 16, 2011).
    (b) The exemption provided in paragraph (a) of this section does 
not apply to the provisions of Section 17(a) of the Act (15 U.S.C. 
77q(a)).
    (c) This rule will expire on the compliance date for final rules 
that the Commission may adopt further defining both the terms security-
based swap and eligible contract participant. In such event, the 
Commission will publish a rule removing this section from 17 CFR part 
230 or modifying it as appropriate.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
3. The authority citation for part 240 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78p, 78q, 
78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 
80b-3, 80b-4, 80b-11, and 7201 et seq., 18 U.S.C. 1350, and 12 
U.S.C. 5221(e)(3), unless otherwise noted.
* * * * *

0
4. Section 240.12a-11 is added to read as follows:

[[Page 40612]]

Sec.  240.12a-11  Exemption of security-based swaps sold in reliance on 
Securities Act of 1933 Rule 240 (Sec.  230.240) from section 12(a) of 
the Act.

    (a) The provisions of Section 12(a) of the Act (15 U.S.C. 78l(a)) 
do not apply to any security-based swap offered and sold in reliance on 
Rule 240 under the Securities Act of 1933.
    (b) This rule will expire on the compliance date for final rules 
that the Commission may adopt further defining both the terms security-
based swap and eligible contract participant. In such event, the 
Commission will publish a rule removing this section from 17 CFR part 
240 or modifying it as appropriate.

0
5. Section 240.12h-1 is amended by adding paragraph (i) to read as 
follows:


Sec.  240.12h-1  Exemptions from registration under section 12(g) of 
the Act.

* * * * *
    (i) Any security-based swap offered and sold in reliance on Rule 
240 under the Securities Act of 1933. This rule will expire on the 
compliance date for final rules that the Commission may adopt further 
defining both the terms security-based swap and eligible contract 
participant. In such event, the Commission will publish a rule removing 
this paragraph (i) from 17 CFR part 240 or modifying it as appropriate.

PART 260--GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF 
1939

0
6. The authority citation for Part 260 continues to read as follows:

    Authority:  15 U.S.C. 77eee, 77ggg, 77nnn, 77sss, 78ll(d), 80b-
3, 80b-4, and 80b-11.


0
7. Section 260.4d-12 is added to read as follows:


Sec.  260.4d-12  Exemption for security-based swaps offered and sold in 
reliance on Securities Act of 1933 Rule 240 (Sec.  230.240).

    Any security-based swap offered and sold in reliance on Rule 240 of 
this chapter (17 CFR 230.240), whether or not issued under an 
indenture, is exempt from the Act. This rule will expire on the 
compliance date for final rules that the Commission may adopt further 
defining both the terms security-based swap and eligible contract 
participant. In such event, the Commission will publish a rule removing 
this section from 17 CFR part 260 or modifying it as appropriate.

    By the Commission.

    Dated: July 1, 2011.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-17039 Filed 7-8-11; 8:45 am]
BILLING CODE 8011-01-P


