
[Federal Register Volume 80, Number 181 (Friday, September 18, 2015)]
[Notices]
[Pages 56519-56522]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-23464]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75919]


Order Pursuant to Sections 15F(b)(6) and 36 of the Securities 
Exchange Act of 1934 Extending Certain Temporary Exemptions and a 
Temporary and Limited Exception Related to Security-Based Swaps

September 15, 2015.

I. Introduction

    On June 15, 2011, the Securities and Exchange Commission 
(``Commission'') issued an order granting temporary exemptions and 
exceptions from compliance with certain provisions of

[[Page 56520]]

the Securities Exchange Act of 1934 (``Exchange Act'') \1\ applicable 
to security-based swaps (``SB swaps''), that were amended or added by 
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
(``Dodd-Frank Act'').\2\ The Temporary Exemptions Order provided, among 
other things, a temporary exemption from Section 3E(f) of the Exchange 
Act for security-based swap dealers and major security-based swap 
participants (together, ``SBS Entities''), a temporary and limited 
exception from Section 15F(b)(6) of the Exchange Act with respect to 
persons then currently associated with SBS Entities, and temporary 
exemptions from Section 29(b) of the Exchange Act with respect to 
violations of Sections 3E(f) and 15F(b)(6) in connection with SB swap 
contracts entered into on or after July 16, 2011. The Commission is 
extending the exemption from Section 3E(f) and exception from Section 
15F(b)(6) until the compliance date of rules we have adopted to 
establish a process by which SBS Entities can register (and withdraw 
from registration) with the Commission.\3\ In addition, the Commission 
is specifying when the related exemption for Section 29(b) with respect 
to SB swap contracts that involve violations of Sections 3E(f) or 
15F(b)(6) will expire.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78a et seq.
    \2\ See 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, Exchange Act Release No. 64678 (June 15, 2011), 76 FR 36287 
(June 22, 2011) (``Temporary Exemptions Order'').
    \3\ See Registration Process for Security-Based Swap Dealers and 
Major Security-Based Swap Participants, Exchange Act Release No. 
75611 (Aug. 5, 2015), 80 FR 48964 (Aug.14, 2015) (``Registration 
Adopting Release'').
---------------------------------------------------------------------------

II. Background

    Title VII of the Dodd-Frank Act amended the Exchange Act to 
establish a new regulatory framework for the security-based swap 
markets. The provisions of Title VII generally were effective as of 
July 16, 2011, unless a rulemaking or other Commission action is 
required. The Temporary Exemptions Order provided guidance with respect 
to the compliance dates of Exchange Act provisions added by Title VII. 
It also identified those provisions with which compliance was required 
by the effective date of the Title VII amendments to the Exchange Act 
and those with which compliance is triggered by registration, adoption 
of final rules, or other action by the Commission.\4\ Where compliance 
was required by the effective date of Title VII, the Temporary 
Exemptions Order granted certain temporary exemptions and exceptions 
where necessary or appropriate in the public interest, and consistent 
with the protection of investors.\5\ The Temporary Exemptions Order 
included temporary exemptions from Sections 3E(f) and 29(b), and a 
temporary and limited exception from Section 15F(b)(6).\6\
---------------------------------------------------------------------------

    \4\ See Temporary Exemptions Order.
    \5\ See id.
    \6\ Section 36(c) of the Exchange Act, 15 U.S.C. 78mm(c), limits 
the Commission's exemptive authority with respect to certain 
provisions of the Exchange Act added by Title VII, including Section 
15F. However, Section 15F(b)(6) expressly authorizes the Commission 
to establish exceptions to this provision by rule, regulation, or 
order.
---------------------------------------------------------------------------

    Section 3E of the Exchange Act, added by Section 763(d) of the 
Dodd-Frank Act, regulates the collection and handling of collateral for 
SB swaps, and sets out certain rights of the counterparties who deliver 
such collateral.\7\ Section 3E(f) requires SBS Entities to segregate 
initial margin amounts delivered by their counterparties in uncleared 
SB swap transactions if requested to do so by such counterparties.\8\ 
The statutory compliance date for Section 3E(f) was July 16, 2011. As 
explained in the Temporary Exemptions Order, the segregation required 
under Section 3E(f) will require expenditures of resources and time, 
such as the establishment of accounts and the adoption of policies and 
procedures setting forth the proper collection and maintenance of 
collateral. The Commission found that a temporary exemption from 
Section 3E(f) for SBS Entities was necessary or appropriate in the 
public interest, and was consistent with the protection of investors 
because it would allow persons to register as an SBS Entity in 
accordance with the applicable registration requirements, once 
established, prior to expending resources to comply with the provisions 
of Section 3E(f), and because it would give SBS Entities additional 
time to establish the necessary accounts and adopt the policies and 
procedures required by Section 3E(f).\9\ Under the Temporary Exemption 
Order, the temporary exemption from Section 3E(f) would expire on the 
date upon which the rules adopted by the Commission to register SBS 
Entities become effective.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78c-5.
    \8\ 15 U.S.C. 78c-5(f).
    \9\ See Temporary Exemptions Order n. 98 (providing that, 
``Notwithstanding the exemption granted, market participants in 
uncleared SB swaps may continue to voluntarily negotiate for and 
receive similar protections to those provided in section 3E(f) of 
the Exchange Act, 15 U.S.C. 78c-5(f), until compliance with such 
section 3E(f) is required.'').
---------------------------------------------------------------------------

    Section 15F of the Exchange Act, added by Section 764(a) of the 
Dodd-Frank Act, establishes the regulatory framework for SBS 
Entities.\10\ Section 15F(b)(6) provides that ``except to the extent 
otherwise provided by rule, regulation or order of the Commission,'' it 
shall be unlawful for an SBS Entity to permit an associated person who 
is subject to a statutory disqualification to effect or be involved in 
effecting security-based swaps on its behalf, if the SBS Entity knew or 
should have known of the statutory disqualification.\11\ In the 
Temporary Exemptions Order, the Commission exercised its authority 
under Section 15F(b)(6) to provide a temporary and limited exception 
for SBS Entities from the application of the prohibition in that 
section. Specifically, the Temporary Exemptions Order provides that 
persons subject to a statutory disqualification who were, as of July 
16, 2011, associated with an SBS Entity and who effected or were 
involved in effecting security-based swaps on behalf of such SBS Entity 
could continue to be associated with an SBS Entity until the date upon 
which rules adopted by the Commission to register SBS Entities become 
effective. In providing this exception, the Commission explained that 
it intended to separately consider issues related to how an associated 
person that is subject to a statutory disqualification may be involved 
in the security-based swap business of the SBS Entity.\12\ The 
Commission also noted that existing business relationships and market 
activity could be unnecessarily disrupted if market participants were 
required to comply with Section 15F(b)(6) before the Commission 
considers, through notice and comment rulemaking, whether to adopt a 
procedure for potential modifications of the effect of statutory 
disqualifications under Title VII of the Dodd-Frank Act for SBS 
Entities and what any such procedure would require.\13\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78o-10.
    \11\ 15 U.S.C. 78o-10(b)(6).
    \12\ See Temporary Exemptions Order at 36301.
    \13\ See id.
---------------------------------------------------------------------------

    Section 29(b) of the Exchange Act generally provides that contracts 
made in violation of any provision of the Exchange Act, or the rules 
thereunder, shall be void ``(1) as regards the rights of any person 
who, in violation of any such provision, . . . shall have made or 
engaged in the performance of any such contract, and (2) as regards the 
rights of any person who, not being a party to such contracts, shall 
have acquired any right thereunder with actual knowledge of the facts 
by reason of which the

[[Page 56521]]

making or performance of such contracts in violation of any such 
provision . . . .'' \14\ In the Temporary Exemptions Order, the 
Commission temporarily exempted any SB swap contract entered into on or 
after July 16, 2011 from being void or considered voidable by reason of 
Section 29(b) because any person that is a party to a contract violated 
a provision of the Exchange Act that was amended or added by Title VII 
of Dodd-Frank and for which the Commission has taken the view that 
compliance will be triggered by registration of a person or by adoption 
of final rules by the Commission, or has provided an exception or 
exemption in the Temporary Exemptions Order, until such date as the 
Commission specifies. The temporary exemption from Section 29(b) 
applies to contracts that would otherwise involve violations of, among 
other provisions, Sections 3E(f) or 15F(b)(6) of the Exchange Act.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78cc(b).
---------------------------------------------------------------------------

    The Commission received several comments in response to the 
Temporary Exemptions Order.\15\ Although none of the commenters 
specifically referred to Sections 3E(f), 15F(b)(6), or 29(b), one 
commenter noted that the Temporary Exemptions Order was, in general, 
reasonable in terms of its scope and duration.\16\ In particular, the 
commenter stated that the exemption from specific requirements under 
the Dodd-Frank Act was appropriate where the Commission had not 
completed ``other steps, such as finalizing rules, setting up the 
registration regime, or establishing infrastructure.'' \17\ Another 
commenter urged the Commission ``to align the implementation of the 
self-operative provisions with the provisions that are dependent on 
rulemaking to ensure a coherent realization of the new swaps regulatory 
regime.'' \18\
---------------------------------------------------------------------------

    \15\ See 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, and U.S. Chamber of Commerce, (June 
10, 2011); Letter from Jir[iacute] Kr[oacute]l, Alternative 
Investment Management Association Limited (July 1, 2011); Letter 
from Bruce C. Bennett, Covington and Burling LLP (July 1, 2011); 
Letter from Dennis M. Kelleher, Stephen W. Hall, Better Markets, 
Inc. (July 6, 2011); Letter from Jeff Gooch, MarkitSERV (July 15, 
2011); Letter from Kevin Gould, Markit North America, Inc. (July 26, 
2011), available at http://www.sec.gov/comments/s7-24-11/s72411.shtml.
    \16\ See Letter from Dennis M. Kelleher, Stephen W. Hall, Better 
Markets, Inc. (July 6, 2011), at 2, available at http://www.sec.gov/comments/s7-24-11/s72411-3.pdf.
    \17\ See id.
    \18\ See 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, and U.S. Chamber of Commerce (June 
10, 2011).
---------------------------------------------------------------------------

III. Discussion

    In August, 2015, the Commission adopted rules to establish a 
process by which SBS Entities can register (and withdraw from 
registration) with the Commission (``Registration Rules'').\19\ These 
rules will become effective October 13, 2015, but compliance with the 
Registration Rules will not be required until the later of: Six months 
after the date of publication in the Federal Register of final rules 
establishing capital, margin and segregation requirements for SBS 
Entities; \20\ the compliance date of final rules establishing 
recordkeeping and reporting requirements for SBS Entities; \21\ the 
compliance date of final rules establishing business conduct 
requirements under Sections 15F(h) and 15F(k) of the Exchange Act; \22\ 
or the compliance date for final rules establishing a process for a 
registered SBS Entity to make an application to the Commission to allow 
an associated person who is subject to a statutory disqualification to 
effect or be involved in effecting security-based swaps on the SBS 
Entity's behalf (``Registration Compliance Date''). At the same time, 
the Commission also proposed rules that would, if adopted, establish a 
process for an SBS Entity to make an application to the Commission to 
allow an associated person subject to statutory disqualification to 
effect or be involved in effecting security-based swaps on behalf of 
the SBS Entity.\23\
---------------------------------------------------------------------------

    \19\ See Registration Adopting Release.
    \20\ The Commission previously has proposed rules to establish 
capital, margin and segregation requirements for SBS Entities. See 
Capital, Margin, and Segregation Requirements for Security-Based 
Swap Dealers and Major Security-Based Swap Participants and Capital 
Requirements for Broker-Dealers, Exchange Act Release No. 68071 
(Oct. 18, 2012), 77 FR 70213 (Nov. 23, 2012).
    \21\ The Commission previously has proposed rules to establish 
recordkeeping and reporting requirements for SBS Entities. See 
Recordkeeping and Reporting Requirements for Security-Based Swap 
Dealers, Major Security-Based Swap Participants, and Broker-Dealers; 
Capital Rule for Certain Security-Based Swap Dealers, Exchange Act 
Release No. 71958 (Apr. 17, 2014), 79 FR 25193 (May 2, 2014).
    \22\ The Commission previously has proposed rules to establish 
business conduct standards for SBS Entities. See Business Conduct 
Standards for Security-Based Swap Dealers and Major Security-Based 
Swap Participants, Exchange Act Release No. 64766 (June 29, 2011), 
76 FR 42395 (July 18, 2011).
    \23\ Applications by Security-Based Swap Dealers or Major 
Security-Based Swap Participants for Consent for Associated Persons 
to Effect or Be Involved in Effecting Security-Based Swaps, Exchange 
Act Release No. 75612 (Aug. 5, 2105), 80 FR 51683 (Aug. 25, 2015) 
(proposing new Rule of Practice 194).
---------------------------------------------------------------------------

    Under the terms of the Temporary Exemptions Order, the temporary 
exemption from Section 3E(f) of the Exchange Act and exception from 
Section 15F(b)(6) of the Exchange Act will expire when rules adopted by 
the Commission to register SBS Entities become effective. Accordingly, 
absent an extension, the temporary exemption from the segregation 
requirements in Section 3E(f) and exception from the prohibition in 
Section 15F(b)(6) in the Temporary Exemptions Order will expire upon 
the effective date of the Registration Rules, even though SBS Entities 
would not be required to register until the Registration Compliance 
Date. As stated in the Temporary Exemptions Order, the Commission 
continues to believe that persons should be able to register in 
accordance with the applicable registration requirements prior to 
expending resources to comply with Section 3E(f). Therefore, the 
Commission is extending the temporary exemption from the requirements 
of Section 3E(f) until the Registration Compliance Date.\24\
---------------------------------------------------------------------------

    \24\ The Commission also notes that this extension will allow 
persons to have the ability to review the final capital, margin and 
segregation rules before being required to comply with the 
requirements of Section 3E(f), as the compliance date of the 
Registration Rules will occur no earlier than six months after the 
date of publication in the Federal Register of final rules 
establishing capital, margin and segregation requirements for SBS 
Entities.
---------------------------------------------------------------------------

    The Commission also continues to believe that existing business 
relationships and market activity may be unnecessarily disrupted if 
market participants were required to comply with Section 15F(b)(6) of 
the Exchange Act before the Commission considered, through notice and 
comment rulemaking, whether to adopt a procedure for potential 
modifications of the effect of statutory disqualifications under Title 
VII for SBS Entities, and what any such procedure would require.\25\ As 
noted above, the Commission has proposed rules relating to the 
requirements of Section 15F(b)(6). The Registration Compliance Date 
will occur no earlier than final rules establishing a process for a 
registered

[[Page 56522]]

SBS Entity to make an application to the Commission to allow an 
associated person who is subject to a statutory disqualification to 
effect or be involved in effecting security-based swaps on the SBS 
Entity's behalf. Accordingly, the Commission is extending the temporary 
and limited exception from the requirements of Section 15F(b)(6) until 
the Registration Compliance Date.
---------------------------------------------------------------------------

    \25\ See supra note 23. The Commission has provided guidance in 
the Registration Adopting Release regarding the dates on which SBS 
Entities will become subject to registration requirements based on 
their status as either a SBS Dealer or Major SBS Participant. See 
Registration Adopting Release, 80 FR at 48988. In accordance with 
this guidance, we do not believe that any entity will have the 
status of an SBS Entity prior to the Registration Compliance Date. 
However, for the avoidance of doubt and possible legal uncertainty, 
the Commission is extending the previously granted temporary 
exemption from Section 3E(f) and the temporary and limited exception 
from Section 15F(b)(6) until the Registration Compliance Date.
---------------------------------------------------------------------------

    As discussed in the Temporary Exemptions Order, the Commission does 
not believe that Section 29(b) of the Exchange Act would apply to the 
provisions of Title VII for which the Commission has taken the view 
that compliance will either be triggered by registration of a person or 
by adoption of final rules by the Commission, or for which the 
Commission has provided an exception or exemption in that order. For 
the avoidance of doubt and to avoid possible legal uncertainty or 
market disruption, the Temporary Exemptions Order granted a temporary 
exemption from Section 29(b) until such date as the Commission 
specifies.\26\ The Commission believes that the exemption from Section 
29(b) provided under the Temporary Exemptions Order with respect to 
Sections 3E(f) and 15F(b)(6) of the Exchange Act will continue to apply 
during the period of time covered by the extensions in this Order. 
However, to avoid any doubt or possible legal uncertainty regarding the 
continuing availability of the temporary exemption from Section 29(b) 
with respect to Sections 3E(f) and 15(b)(6), the Commission is 
exercising its authority under Section 36 of the Exchange Act to 
continue the exemption from Section 29(b) with respect to Sections 
3E(f) and 15(b)(6) until the Registration Compliance Date.
---------------------------------------------------------------------------

    \26\ See Temporary Exemptions Order at 36305-06.
---------------------------------------------------------------------------

IV. Conclusion

    It is hereby ordered, pursuant to Section 36 of the Exchange Act, 
that SBS Entities are exempt from the requirements of Section 3E(f) of 
the Exchange Act until the Registration Compliance Date.
    It is hereby further ordered, pursuant to Section 15F(b)(6) of the 
Exchange Act, that SBS Entities are temporarily excepted from the 
prohibition of Section 15F(b)(6) with respect to persons subject to a 
statutory disqualification who were associated with an SBS Entity as of 
July 16, 2011, and who effect or are involved in effecting SB swaps on 
behalf of such SBS Entity until the Registration Compliance Date.
    It is hereby further ordered, pursuant to Section 36 of the 
Exchange Act, that no SB swap contract entered into on or after July 
16, 2011 shall be void or considered voidable by reason of Section 
29(b) of the Exchange Act because any person that is a party to the 
contract violated Section 3E(f) of the Exchange Act prior to the 
Registration Compliance Date.
    It is hereby further ordered, pursuant to Section 36 of the 
Exchange Act, that no SB swap contract entered into on or after July 
16, 2011 shall be void or considered voidable by reason of Section 
29(b) of the Exchange Act because any person that is a party to the 
contract violated Section 15F(b)(6) of the Exchange Act prior to the 
Registration Compliance.

    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2015-23464 Filed 9-17-15; 8:45 am]
BILLING CODE 8011-01-P


