Co-authored by Ross Pazzol and Blake J. Brockway.

On June 11, the Securities and Exchange Commission issued a policy statement on the sequencing of issuance and compliance dates for the remaining Dodd-Frank Wall Street Reform and Consumer Protection Act rules related to security-based swaps. The SEC’s statement discusses issues related to and presents a general sequence for the following five categories of rules: (1) rules defining “security-based swap,” security-based swap agreement,” and “mixed swap” (Definitional Rules) and the rules concerning treatment of cross-border security-based swap transactions and certain activities of non-U.S. persons (Cross-Border Rules); (2) rules pertaining to the registration and regulation of swap data repositories (SDRs), the reporting of security-based swap transactions, and the public dissemination of security-based swap transaction data; (3) rules related to the mandatory clearing process of security-based swap transactions, clearing agency standards, and the end-user exemption from mandatory clearing; (4) rules pertaining to the registration and regulation of security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs); and (5) rules related to the mandatory trading of security-based swap transactions, including registration and regulation of security-based swap execution facilities (SEFs).

The statement does not provide specific compliance dates or a conclusive sequencing of compliance dates for final rules. Rather, it provides a general framework for sequencing compliance dates that will allow market participants to comment on the general order of the remaining final rules. The statement also discusses the previous relief the SEC has granted related to security-based swaps and when these exemptions will expire.

As the SEC observed, the Definitional Rules need to be adopted first, because they help inform market participants about the applicability of the other remaining rules. The SEC noted that the Cross-Border Rules also need to be adopted before other rules that have cross-border implications. The SEC indicated that the second step in the implementation process would be for SDRs to register to enable security-based swap transaction reporting. The statement suggests that compliance with the SDR rules should be required as soon as practicable after the effectiveness of the Definitional Rules and Cross-Border Rules taking into account the amount of time necessary for market participants to analyze and understand the Definitional Rules and test new policies and systems that are required as a result of the rule.

The statement indicates that the final rules related to mandatory clearing should not become effective until after the later of: (1) the compliance date for certain clearing agency standards rules; (2) the compliance date of final rules resulting from the end-user clearing exception proposal; and (3) the SEC’s determining whether to propose amendments to its net capital and customer protection rules to accommodate cleared security-based swaps.

The compliance date for the fourth category, related to the registration of SBSDs and MSBSPs, would reflect the amount of time that these entities might need to comply with the new recordkeeping, business conduct, and trade documentation rules. After all of the foregoing rules are in place, the registration requirements and core principles for security-based SEFs and mandatory trade execution requirements would become effective.

It is not clear whether the SEC’s statement will have any effect on the Commodity Futures Trading Commission’s approach to setting issuance and compliance dates, and it could be that the pace of implementation of the new regulatory regime will be different for swaps and security-based swaps.

The SEC is seeking public comment on all aspects of the statement.

The SEC’s statement is available here.