
[Federal Register Volume 82, Number 15 (Wednesday, January 25, 2017)]
[Notices]
[Pages 8467-8469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01620]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79833; File No. S7-27-11]


Order Extending Certain Temporary Exemptions Under the Securities 
Exchange Act of 1934 in Connection With the Revision of the Definition 
of ``Security'' To Encompass Security-Based Swaps and Request for 
Comment

January 18, 2017.

I. Introduction

    The Securities and Exchange Commission (``Commission'') is (i) 
extending certain temporary exemptive relief originally provided by the 
Commission in connection with the revision of the definition of 
``security'' in the Securities Exchange Act of 1934 (``Exchange Act'') 
to encompass security-based swaps (``Temporary Exemptions''); \1\ and 
(ii) requesting comment on whether continuing exemptive relief is 
necessary beyond February 5, 2018. These temporary exemptions were 
provided by the Commission on July 1, 2011 and most recently extended 
by the Commission on February 5, 2014.\2\ Certain of the Temporary 
Exemptions are set to expire on February 5, 2017.\3\
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    \1\ See Order Granting Temporary Exemptions under the Securities 
Exchange Act of 1934 in Connection with the Pending Revisions of the 
Definition of ``Security'' to Encompass Security-Based Swaps, 
Exchange Act Release No. 64795 (Jul. 1, 2011), 76 FR 39927 (Jul. 7, 
2011) (``Exchange Act Exemptive Order'').
    \2\ See Order Extending Temporary Exemptions under the 
Securities Exchange Act of 1934 in Connection with the Revision of 
the Definition of ``Security'' to Encompass Security-Based Swaps, 
and Request for Comment, Exchange Act Release No. 71485 (Feb. 5, 
2014), 79 FR 7731 (Feb. 10, 2014) (``Extension Order''); see also 
Further Definition of ``Swap,'' ``Security-Based Swap,'' and 
``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap 
Agreement Recordkeeping, Exchange Act Release No. 67453 (Jul. 18, 
2012), 77 FR 48207 (Aug. 13, 2012) (``Product Definitions Adopting 
Release'') (extending the expiration date of the Temporary 
Exemptions to February 11, 2013); and Order Extending Temporary 
Exemptions under the Securities Exchange Act of 1934 in Connection 
with the Revision of the Definition of ``Security'' to Encompass 
Security-Based Swaps, and Request for Comment, Exchange Act Release 
No. 68864 (Feb. 7, 2013), 78 FR 10218 (Feb. 13, 2013) (``2013 
Extension Order'') (extending the expiration date to February 11, 
2014).
    \3\ See Extension Order.
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    The expiration dates in the Extension Order distinguished between: 
(i) The Temporary Exemptions related to pending security-based swap 
rulemakings (``Linked Temporary Exemptions''); and (ii) the Temporary 
Exemptions that generally were not directly related to a specific 
security-based swap rulemaking (``Unlinked Temporary Exemptions''). The 
expiration dates for the Linked Temporary Exemptions established by the 
Extension Order were the compliance dates for the specific rulemakings 
to which they were ``linked,'' and the expiration date for the Unlinked 
Temporary Exemptions was three years following the effective date of 
the Extension Order (i.e., February 5, 2017), or such time that the 
Commission issues an order or rule determining whether continuing 
exemptive relief is appropriate for security-based swaps with respect 
to any such Unlinked Temporary Exemptions.
    As described in more detail below, the Commission is extending the 
expiration date for the Unlinked Temporary Exemptions until February 5, 
2018. This approach provides the Commission flexibility to determine 
whether continuing relief should be provided for any Unlinked Temporary 
Exemptions while the Commission continues to consider the relevant 
rules mandated by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act.\4\ This release has no effect on the expiration dates 
for the Linked Temporary Exemptions.\5\
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    \4\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124, Stat. 1376 (2010) (``Dodd-Frank 
Act'').
    \5\ The Commission has already addressed some of the Linked 
Temporary Exemptions. For example, on June 8, 2016, the Commission 
adopted new rules for trade acknowledgement and verification of 
security-based swap transactions. See Trade Acknowledgement and 
Verification of Security-Based Swap Transactions, Exchange Act 
Release No. 78011 (Jun. 8, 2016), 81 FR 39807 (Jun. 17, 2016) 
(``Trade Acknowledgment Release''). In that release, the Commission 
described the application of Exchange Act Rule 10b-10 to 
transactions in security-based swaps and noted that the Linked 
Exemption relating to Exchange Act Rule 10b-10 would expire upon the 
compliance date of the new Rule 15Fi-2. See Trade Acknowledgement 
Release at 39824-25, note 189.
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II. Discussion

A. Background

    Title VII of the Dodd-Frank Act amended the definition of 
``security'' under the Exchange Act to expressly encompass security-
based swaps.\6\ The expansion of the definition of the term 
``security'' changed the scope of the Exchange Act regulatory 
provisions that apply to security-based swaps and

[[Page 8468]]

raised certain complex questions that require further consideration.
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    \6\ See Section 761(a)(2) of the Dodd-Frank Act (amending 
Section 3(a)(10) of the Exchange Act (15 U.S.C. 78c(a)(10)). The 
provisions of Title VII generally became effective on July 16, 2011 
(360 days after the enactment of the Dodd-Frank Act) (the 
``Effective Date''), unless a provision required a rulemaking, in 
which case the provision would go into effect ``not less than'' 60 
days after publication of the related final rules in the Federal 
Register or on July 16, 2011, whichever is later. See Section 774 of 
the Dodd-Frank Act.
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    On July 1, 2011, the Commission issued the Exchange Act Exemptive 
Order granting temporary exemptive relief from compliance with certain 
provisions of the Exchange Act in connection with the revision of the 
Exchange Act definition of ``security'' to encompass security-based 
swaps.\7\ The Exchange Act Exemptive Order granted temporary exemptive 
relief from compliance with certain provisions of the Exchange Act in 
connection with security-based swap activity by: (i) Any person who 
meets the definition of ``eligible contract participant'' (``ECPs'') 
set forth in Section 1a(12) of the Commodity Exchange Act as of the day 
prior to the enactment of the Dodd-Frank Act (July 20, 2010) and (ii) a 
broker or dealer registered under Section 15(b) of the Exchange Act.\8\
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    \7\ At the time it issued the Exchange Act Exemptive Order, the 
Commission also adopted interim final rules that generally exempted 
offers and sales of security-based swaps entered into between 
eligible contract participants that would have been within the 
definition of ``security-based swap agreement'' under the Securities 
Act of 1933 (``Securities Act'') and the Exchange Act prior to the 
Effective Date from all provisions of the Securities Act, other than 
the Section 17(a) anti-fraud provisions, the registration 
requirements of the Exchange Act, and the provisions of the Trust 
Indenture Act of 1939, provided certain conditions are met. See 
Exemptions for Security-Based Swaps, Securities Act Release No. 
9231, Exchange Act Release No. 64794, Trust Indenture Act Release 
No. 2475 (Jul. 1, 2011), 76 FR 40605 (Jul. 11, 2011). This extension 
order does not address these interim final rules, which are 
scheduled to expire on February 11, 2017. See Extension of 
Exemptions for Security-Based Swaps, Securities Act Release No. 
9545, Exchange Act Release No. 71482, Trust Indenture Act Release 
No. 2495 (Feb. 5, 2014), 79 FR 7570 (Feb. 10, 2014).
    The Commission also, on June 15, 2011, issued an exemptive order 
granting temporary relief from compliance with certain provisions 
added to the Exchange Act by subtitle B of Title VII of the Dodd-
Frank Act with which compliance would have otherwise been required 
as the Effective Date. In that order, the Commission provided 
guidance regarding the provisions of the Exchange Act that were 
added by Title VII with which compliance was required as of the 
Effective Date. 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 Securities-Based 
Swaps, Exchange Act Release No. 64678 (Jun. 15, 2011), 76 FR 36287 
(Jun. 22, 2011).
    \8\ See Exchange Act Exemptive Order. The Exchange Act Exemptive 
Order did not provide exemptive relief for any provisions or rules 
prohibiting fraud, manipulation, or insider trading (other than the 
prophylactic reporting or recordkeeping requirements such as the 
confirmation requirements of Exchange Act Rule 10b-10). In addition, 
the Exchange Act Exemptive Order did not affect the Commission's 
investigative, enforcement, and procedural authority related to 
those provisions and rules. See Exchange Act Exemptive Order at 
39931, note 34. The Exchange Act Exemptive Order also did not 
address Sections 12, 13, 14, 15(d), 16, and 17A of the Exchange Act 
and the rules thereunder. The Commission did, however, issue limited 
temporary relief from the clearing agency registration requirements 
under Section 17A(b) for entities providing certain clearing 
services for security-based swaps. This relief was linked to final 
rules issued by the Commission relating to the registration of 
clearing agencies that clear security-based swaps. See Order 
Pursuant to Section 36 of the Securities Exchange Act of 1934 
Granting Temporary Exemptions from Clearing Agency Registration 
Requirements under Section 17A(b) of the Exchange Act for Entities 
Providing Certain Clearing Services for Security-Based Swaps, 
Exchange Act Release No. 64796 (Jul. 1, 2011), 76 FR 39963 (Jul. 7, 
2011).
     The Commission also provided a temporary exemption within the 
Exchange Act Exemptive Order for Sections 5 and 6 of the Exchange 
Act and linked the expiration date of that exemptive relief until 
the earliest compliance date set forth in any of the final rules 
regarding registration of security-based swap execution facilities. 
See Exchange Act Exemptive Order at 39934-36.
    The Exchange Act Exemptive Order further provided that no 
security-based 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 a provision of the Exchange Act for which the Commission 
has provided exemptive relief in the Exchange Act Exemptive Order, 
until such time as the underlying exemptive relief expires. By 
extending the underlying Unlinked Temporary Exemptions until 
February 5, 2018, this order will also extend the relevant Section 
29(b) relief until that same date. See Exchange Act Exemptive Order 
at 39938-39.
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    The overall approach of the Exchange Act Exemptive Order was 
directed toward maintaining the status quo during the implementation 
process for the Dodd-Frank Act by preserving the application of 
particular Exchange Act requirements that were already applicable in 
connection with instruments that became ``security-based swaps'' 
following the Effective Date of the Dodd-Frank Act,\9\ but deferring 
the applicability of additional Exchange Act requirements in connection 
with those instruments explicitly being defined as ``securities'' as of 
the Effective Date.\10\
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    \9\ These instruments generally constituted ``security-based 
swap agreements'' under the pre-Dodd-Frank Act framework and were 
already subject to specific antifraud and anti-manipulation 
provisions under the Exchange Act (including Exchange Act Section 
10(b)). Under the Exchange Act Exemption Order, instruments that 
(before the Effective Date) were security-based swap agreements and 
(after the Effective Date) constituted security-based swaps were 
still subject to the application of those Exchange Act provisions. 
See Exchange Act Exemptive Order at 39930, notes 24-25.
    \10\ See Exchange Act Exemptive Order at 39929.
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    As described above, the Commission most recently extended the 
expiration date of the Unlinked Temporary Exemptions until the earlier 
of the time that the Commission issues an order or rule determining 
whether continuing exemptive relief is appropriate, or until three 
years after the effective date of the Extension Order.\11\ This 
approach was designed to provide the Commission with flexibility while 
its Dodd-Frank Act rulemaking is still in progress to determine whether 
continuing relief should be provided for any of the Unlinked Temporary 
Exemptions.\12\
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    \11\ See Extension Order. The Commission did not receive any 
comments in response to the request for comment in the Extension 
Order. However, in 2013, the Commission received a request from 
market participants to extend certain of the Temporary Exemptions, 
citing concerns that key issues and questions regarding the 
application of the federal securities laws remained unresolved and 
continuing concerns about the potential for unnecessary disruption 
to the security-based swap market. See SIFMA Request for Extension 
of the Expiration Date of the SEC's Exchange Act Exemptive Order and 
SBS Interim final Rules (Dec. 20, 2012), which is available at 
http://www.sec.gov/comments/s7-27-11/s72711-12.pdf.
    \12\ See id. at 7731. The Extension Order also linked the 
expiration date of the Linked Temporary Exemptions until the 
compliance date for such rulemakings. The Extension Order identified 
the Linked Temporary Exemptions as those related to: (1) Capital and 
margin requirements (Sections 7 and 15(c)(3), Regulation T, and 
Exchange Act Rules 15c3-1, 15c3-3, and 15c3-4); (2) recordkeeping 
requirements (Sections 17(a) and 17(b) and Exchange Act Rules 17a-3, 
17a-4, 17a-5, 17a-11, and 17a-13); (3) registration requirements 
under Section 15(a)(1) and the other requirements of the Exchange 
Act and the rules and regulations thereunder that apply to a 
``broker'' or ``dealer'' that is not registered with the Commission; 
(4) Exchange Act Rule 10b-10; and (5) Regulation ATS. Accordingly, 
as applicable, the Commission extended these exemptions until the 
compliance date for pending rulemakings concerning: Capital, margin, 
and segregation requirements for security-based swap dealers and 
major security-based swap participants; recordkeeping and reporting 
requirements for broker-dealers, security-based swap dealers, and 
major security-based swap participants; security-based swap trade 
acknowledgements; and registration requirements for security-based 
swap execution facilities. The Linked Temporary Exemptions are not 
addressed in this order and will be separately considered in 
connection with the related security-based swap rulemakings. See 
supra note 5.
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B. Extension of Unlinked Temporary Exemptions

    Since the issuance of the Extension Order, the Commission has 
implemented a substantial portion of the regulatory regime for 
security-based swaps required by Title VII of the Dodd-Frank Act.\13\ 
However, the Commission

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is still in the process of considering its rules under Title VII of the 
Dodd-Frank Act.\14\ Therefore, the Commission believes it is necessary 
or appropriate in the public interest, and consistent with the 
protection of investors to extend the Unlinked Temporary Exemptions 
until February 5, 2018 to avoid any potential market disruption 
stemming from the application of certain existing Exchange Act 
provisions and rules to security-based swap activities. This approach 
also will provide the Commission with additional time to consider the 
potential impact of the revision of the Exchange Act definition of 
``security'' on the scope of the Exchange Act provisions and rules 
applicable to security-based swaps, as well as the appropriateness of 
applying certain Exchange Act provisions and rules to security-based 
swap activities in light of the Commission's continuing rulemaking 
efforts.
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    \13\ See, e.g., Regulation SBSR--Reporting and Dissemination of 
Security-Based Swap Information, Exchange Act Release No. 74244 
(Feb. 11, 2015), 80 FR 14563 (Mar. 19, 2015); Security-Based Swap 
Data Repository Registration, Duties, and Core Principles, Exchange 
Act Release No. 74246 (Feb. 11, 2015), 80 FR 14437 (Mar. 19, 2015); 
Registration Process for Security-Based Swap Dealers and Major 
Security-Based Swap Participants, Exchange Act Release No. 75611 
(Aug. 5, 2015), 80 FR 48963 (Aug. 14, 2015); Security-Based Swap 
Transactions Connected with a Non-U.S. Person's Dealing Activity 
That Are Arranged, Negotiated, or Executed By Personnel Located in a 
U.S. Branch or Office or in a U.S. Branch or Office of an Agent; 
Security-Based Swap Dealer De Minimis Exception, Exchange Act 
Release No. 77104 (Feb. 10, 2016), 81 FR 8597 (Feb. 19, 2016); Trade 
Acknowledgement Release; Business Conduct Standards for Security-
Based Swap Dealers and Major Security-Based Swap Participants, 
Exchange Act Release 77617 (Apr. 14, 2016), 81 FR 29960 (May 13, 
2016); Regulation SBSR--Reporting and Dissemination of Security-
Based Swap Information, Exchange Act Release No. 78321 (Jul. 14, 
2016), 81 FR 53545 (Aug. 12, 2016); and Access to Data Obtained by 
Security-Based Swap Data Repositories, Exchange Act Release No. 
78716 (Aug. 29, 2016), 81 FR 60585 (Sep. 2, 2016).
    \14\ See e.g., Registration and Regulation of Security-Based 
Swap Execution Facilities, Exchange Act Release No. 63825 (Feb. 2, 
2011), 76 FR 10948 (Feb. 28, 2011); 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); 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; Proposed Rules, Exchange Act Release No. 71958 (Apr. 17, 
2014), 79 FR 25194 (May 2, 2014); and Applications by Security-Based 
Swap Dealers or Major Security-Based Swap Participants for 
Statutorily Disqualified Associated Person To Effect or Be Involved 
in Effecting Security-Based Swaps, Exchange Act Release No. 75612 
(Aug 5, 2015), 80 FR 51684 (Aug. 25, 2015).
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    Accordingly, pursuant to its authority under Section 36 of the 
Exchange Act,\15\ the Commission believes it is necessary or 
appropriate in the public interest, and consistent with the protection 
of investors to extend the expiration of the Unlinked Temporary 
Exemptions until February 5, 2018.
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    \15\ 15 U.S.C. 78mm. Section 36 of the Exchange Act authorizes 
the Commission to conditionally or unconditionally exempt, by rule, 
regulation, or order any person, security, or transaction (or any 
class or classes of persons, securities, or transactions) from any 
provision of the Exchange Act or any rule or regulation thereunder, 
to the extent such exemption is necessary or appropriate in the 
public interest, and is consistent with the protection of investors.
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III. Solicitation of Comments

    The Commission is providing interested parties the opportunity to 
comment on whether any relief should be granted with respect to any 
specific Unlinked Temporary Exemption(s) beyond February 5, 2018. To 
the extent that interested parties request specific relief for any of 
the Unlinked Temporary Exemptions beyond February 5, 2018, any request 
should be detailed as to the circumstances in which the Exchange Act 
provision or rule applies to security-based swaps or security-based 
swap market participants, and why relief would be necessary.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/exorders.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number S7-27-11 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

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

All submissions should refer to File Number S7-27-11. This file number 
should be included on the subject line if email is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/exorders.shtml). Comments 
are also available for Web site viewing and printing in the 
Commission's Public Reference Room, 100 F St. 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.

IV. Conclusion

    It is hereby ordered, pursuant to Section 36 of the Exchange Act, 
that the Unlinked Temporary Exemptions contained in the Exchange Act 
Exemptive Order and extended in the Extension Order in connection with 
the revisions of the Exchange Act definition of ``security'' to 
encompass security-based swaps are extended until February 5, 2018.

    By the Commission.
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01620 Filed 1-24-17; 8:45 am]
 BILLING CODE 8011-01-P


