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Volume X, Number 190

July 07, 2020

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July 06, 2020

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FINRA Requests Comments on Security-Based Swaps

On May 22, the Financial Industry Regulatory Authority (FINRA) issued an open invitation for member firms and other interested parties to provide views and information about the security-based swap (SBS) market, with particular focus on broker-dealer SBS activities and the application of FINRA rules to those activities. The invitation, which is not a mandatory information request, includes the following questions:

  • Does your firm, or an affiliate of your firm, plan to register with the Securities and Exchange Commission as an SBS dealer or a major SBS participant? Does your firm, or an affiliate of your firm, plan to engage in SBS activity below the SEC registration threshold? If so, how will your firm monitor for compliance with the de minimis thresholds for SBS as established under SEC rules?
  • In what capacity does your firm participate or plan to participate in SBS transactions? For example, as principal, agent or both? Does your firm engage in, or plan to engage in, non-dealing SBS activity, such as entering into SBS for hedging or risk management purposes?
  • Do personnel of your firm arrange, negotiate or execute SBS transactions on behalf of affiliates or clients, or plan to arrange, negotiate or execute such transactions in the future? Are there other SBS-related activities that personnel of your firm engage in, or plan to engage in, such as providing market color, processing trades, engaging in other back-office activities, or Rule 15a-6 activities for foreign affiliates?
  • What type of SBS products does your firm handle or expect to handle? For example, does your firm handle or expect to handle credit default swaps, equity swaps or other types of products?
  • Is your firm’s SBS activity conducted within your firm’s broker-dealer unit or in affiliate entities, or both? If in affiliate entities, what types of affiliates? Are these US affiliates or foreign affiliates, or both?
  • How should FINRA think about the application of its rules to SBS activities? For example, should the application of FINRA rules depend on the capacity in which a member participates in SBS activity or the type of counterparty involved? Should the application of FINRA rules depend on whether the firm also registers as an SBS dealer or major SBS participant?

The invitation says that FINRA would appreciate receiving responses by July 31, 2020.

The FINRA request is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 150


About this Author

Guy Dempsey Jr., Bank Regulations Legal Specialist, Katten Muchin

Guy C. Dempsey Jr. concentrates his practice on derivatives and structured products and on bank regulation. He advises clients on derivatives transactions of all types across all asset classes, as well as on the corporate governance, regulatory, collateral, compliance, insolvency and litigation issues associated with such products.

Much of Guy’s work involves helping bank and non-bank clients analyze the details and impact of the Dodd-Frank Act. He maintains deep knowledge of the banking laws and regulations relating to capital markets activities....