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.