October 23, 2019

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October 21, 2019

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SEC Proposes Risk Mitigation Rules for Uncleared Security-Based Swaps

On December 19, the US Securities and Exchange Commission voted to issue proposed rules that would require the mandatory use of certain risk mitigation techniques by security-based swap dealers and major security-based swap participants (collectively, SBS Entities). Under the proposed rules, SBS Entities will be required to:

  • Reconcile outstanding security-based swaps with applicable counterparties on a periodic basis;

  • Engage in certain forms of portfolio compression exercises, as appropriate; and

  • Execute written security-based swap trading relationship documentation with each of its counterparties prior to, or contemporaneously with, executing a security-based swap transaction.

The SEC says that it has attempted to harmonize the proposed rules with similar existing rules adopted for swaps by the Commodity Futures Trading Commission, but nevertheless found a number of instances where it concluded that it was appropriate to diverge from the CFTC rules. The SEC invites particular comment on those divergences, which it describes in detail in the proposed rules.

The comment period for the proposed rules will end 60 days after publication of the NPR in the Federal Register.

The press release and a fact sheet concerning the proposed rules are available here.

The 240-page text of the proposed rules are available here.

©2019 Katten Muchin Rosenman LLP


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....