In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was adopted in part to enhance accountability and transparency within the financial system. Consistent with that objective, the SEC is taking measures to finalize its regulation of the Dodd-Frank Act for security-based swaps and proposing the adoption of the following rules:

Proposed Rule 9j-1 – Prevention of Fraud in Connection with SBS Entity Transactions

This proposed rule:

• prohibits manipulation or attempted manipulation of the price or valuation of any security-based swap or any payment or related delivery
• provides that an individual cannot escape liability for trading based on possession of material non-public information about a security by purchasing or selling a security-based swap based on that security. The individual also cannot escape liability under the proposed rule by purchasing or selling the underlying security (as opposed to purchasing or selling a security-based swap that is based on that security) 
• provides limited safe harbors for certain specified conduct
• prohibits a range of misconduct and attempted misconduct in connection with security-based swaps, including misconduct in connection with the exercise of any right or performance of any obligation under a security-based swap

Proposed Rule 15Fh-4(c) – Undue Influence Over CCOs

Proposed Rule 15Fh-4(c) would prohibit any officer, director, supervised person or employee of an SBS Entity, or any person acting under such person’s direction, to take any action to coerce, manipulate, mislead, or fraudulently influence the SBS Entity’s CCO in the performance of their duties under the Federal securities laws. 

Proposed new Rule 10B-1 – Reporting of Large SBS Positions Requirement

This new rule would:

• require reporting persons to file amendments promptly in the event of any material change to a previously filed Schedule 10B 
• provide that any Schedule 10B be filed promptly but in no event later than the end of the first business day following the day of execution of the security-based swap transaction that results in the security-based swap position exceeding threshold
• require any person, or group of persons, with a security-based swap position that exceeds a specified reporting threshold to promptly file a Schedule 10B disclosing certain information related to its position
• require filings to be publicly available. Such transparency may provide relevant parties with advance notice that certain market participants are building large positions and therefore facilitate risk management and inform pricing of security-based swaps

Interested parties may submit feedback regarding the proposed rule during the comment period, which will remain open for 45 days after publication in the Federal Register. For details on ways to respond, refer to the Prohibition Against Fraud, Manipulation, or Deception in Connection with Security-Based Swaps; Prohibition against Undue Influence over Chief Compliance Officers; Position Reporting of Large Security-Based Swap Positions Proposed Rule at www.sec.gov.

The proposing release will be published in the Federal Register and the SEC’s website.

Sources:

SEC Proposes Rules to Prevent Fraud in Connection With Security-Based Swaps Transactions, to Prevent Undue Influence over CCOs and to Require Reporting of Large Security-Based Swap Positions (sec.gov)

Fact Sheet (sec.gov)

Proposed Rule (sec.gov)