Co-authored by Avi Badash.
On January 13, the Securities and Exchange Commission approved for immediate effectiveness the Financial Industry Regulatory Authority’s proposal to extend FINRA Rule 0180 to January 17, 2013. FINRA Rule 0180 temporarily limits, with certain exceptions, the application of FINRA rules with respect to security-based swaps.
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) expands the definition of “security” to, among others, expressly encompass security-based swaps. The expansion of the Dodd-Frank Act’s definition of “security” raises certain complex issues of interpretation, including issues as to the application of those provisions to registered broker-dealers. The SEC previously stated that, absent additional time to analyze the foregoing issues, and to consider whether to provide interpretive or operational guidance, the changes required by the Dodd-Frank Act may lead to unnecessary market uncertainty. Accordingly, the SEC has provided certain temporary exemptions to address the expansion of the Dodd-Frank Act’s definition of “security” to expressly encompass security-based swaps.
Because the Dodd-Frank Act’s expanded definition of “security” has similar implications for numerous provisions under FINRA rules, in July 2011, FINRA filed FINRA Rule 0180 for immediate effectiveness, which, with certain exceptions, is intended to temporarily limit the application of FINRA rules with respect to security-based swaps. FINRA Rule 0180 was set expire on January 17, 2012. The SEC approved FINRA’s proposal to extend FINRA Rule 0180 to January 17, 2013, pending the final implementation of new rules and guidance that would provide greater regulatory clarity in relation to security-based swap activities, so as to provide relief from certain FINRA requirements and thereby help avoid undue market disruptions resulting from the change to the definition of “security” under the Dodd-Frank Act.
Click here to read Release No. 34-66156.