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SEC Issues Guidance on Substituted Compliance Applications by Non-US Security-Based Swap Dealers and Major Security-Based Swap Participants

On November 25, the Securities and Exchange Commission’s Division of Trading and Markets issued guidance intended to facilitate certain substituted compliance applications submitted by non-US security-based swap dealers and/or major security-based swap participants (Guidance). 

The Guidance is intended to help persons submitting applications in accordance with Rule 3a71-6 under the Securities Exchange Act of 1934 by posing relevant questions regarding the relevant foreign requirements in comparison with the SEC’s requirements and describing the relevant SEC requirements in detail.

The SEC provided information on five categories of requirements that will be applicable to security-based swap dealers and/or major security-based swap participants. These categories relate to 1) risk controls (including risk controls related to capital, margin, risk management systems and trade acknowledgment and verification); 2) recordkeeping and reporting requirements (including requirements related to record creation, record maintenance, and reporting/notice); 3) internal supervision and compliance requirements (including requirements related to supervision, conflicts of interest, and chief compliance officers); 4) counterparty protections (including protections related to fair and balanced communications, the disclosure of certain risks, characteristics, incentives and conflicts, daily mark disclosure, “know your counterparty,” recommendation suitability, and the disclosure of clearing rights); and 5) any other relevant requirements (including requirements related to the eligible contract participant verification process and special entities and political contributions).

The text of the Guidance is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume IX, Number 347


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....

Michael T. Foley, Katten, Lawyer, Finance, FINRA, Chicago
Special Counsel

Michael Foley represents broker-dealers, investment advisers and other financial services industry participants with respect to a broad spectrum of legal and regulatory matters arising under the federal securities laws.

Michael has nearly 20 years of experience in private practice and in-house at both a large, full-service broker-dealer and at an online discount broker-dealer, advising broker-dealers and other financial institutions regarding compliance with the federal securities and commodities laws, and with the regulations of the US Securities and Exchange Commission, the US Commodity Futures Trading Commission and financial industry self-regulatory organizations. 

Stanley V. Polit, Katten Muchin, Financial Services lawyer, Corporate Regulatory Matters Attorney

Stanley Polit concentrates his practice in transactional, corporate and regulatory aspects of financial services matters. Stan is able to provide legal services to a wide variety of clients including proprietary trading firms, hedge funds, broker-dealers, registered investment advisers, commodity trading advisers, financial institutions and general corporate clients.

Prior to joining Katten, Stan served as a council member for a national crisis management firm, where he specialized in crisis communication and merged media strategies. He has...