Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Saturday, January 15, 2011

SEC Proposes Rule on Acknowledgement & Verification of SBSs

The SEC is proposing a rule governing the way in which certain security-based swap transactions are acknowledged and verified by the parties who enter into them.

Under the proposed rule, security-based swap dealers and major security-based swap participants, collectively known as SBS entities, would have to provide to their counterparties a trade acknowledgement detailing information specific to the transaction.  The new rule, Rule 15Fi-1, is being proposed under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act which generally authorizes the SEC to regulate security-based swaps. Among other things, the new law gives the SEC the authority to establish standards for the confirmation and documentation of security-based swap transactions entered into by SBS entities.

The proposed rule would require SBS entities to provide their counterparties with an electronic record containing information specific to the security-based swap transaction.  In particular, it would require an SBS entity to:

  • Provide a trade acknowledgment to its counterparty in a security-based swap transaction within 15 minutes, 30 minutes or 24 hours of execution, depending on whether the transaction is executed or processed electronically.
  • Electronically process security-based swap transactions if the SBS Entity has the ability to do so.
  • Have written policies and procedures in place that are reasonably designed to obtain verification of the terms outlined in the trade acknowledgment.

In addition, the proposed rule would:

  • Specify which SBS entity is responsible for providing the trade acknowledgment.
  • Permit an SBS entity to satisfy the requirements of the proposed rule by processing the transaction through the facilities of a registered clearing agency.
  • Identify the transaction details that must be included in the trade acknowledgement.
  • Provide a limited exemption from the requirements of Rule 10b-10 under the Exchange Act for SBS Entities that are also brokers.

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