The SEC is adopting amendments to the expiration dates in the interim final rules that provide exemptions for those security-based swaps that, prior to July 16th, 2011, were security-based swap agreements and defined as “securities” under the Securities Act and Exchange Act. This definition is due solely to the provisions of Title VII of the Dodd-Frank Wall Street Reform Act and the Consumer Protection Act. Under the new amendments, the expiration dates on the interim final rules will become February 11, 2018.
These interim final rules (interim final Rule 240 under the Securities Act, interim final Rules 12a-11 and 12h-l(i) under the Exchange Act, and interim final Rule 4d-12 under the Trust Indenture Act) were adopted by the SEC in July 2011. Title VII of the Dodd-Frank Act amended the Securities Act and the Exchange Act to include security-based swaps in definition of “security” for the purpose of regulation. Therefore, these security-based swaps became subject to all the statues, rules, and provisions that apply to securities. Among other reasons, the interim rules were adopted to allow time for the SEC to study and analyze the effect of expanding the “securities” definition to security-based swaps while allowing the security-based swap markets to operate as they did prior to the enactment of Title VII. Most notably, commenters to the SEC expressed concerns that, without suitable exemptions from the registration and disclosure requirements of the Securities Act for those security-based swap transactions entered into solely between eligible contract participants, some communications could be perceived as offers to people who are not eligible participants.
These expiration dates have been extended by the SEC before to enable the Commission to explore whether other regulatory action is appropriate. Specifically, the SEC is carefully considering the SBS Communications Proposal. This proposal would cover the dissemination of price quotes of security-based swaps and potentially other communications or information. Extending the expiration dates of the interim final rules allows security-based swap market participants to continue to enter into transactions without concern that the activities may not comply with the Securities Act, the Exchange Act, or the Trust Indenture Act. The extensions to February 11, 2018 does not affect other aspects of the interim final rules, and these extensions are also subject to alteration by the Commission if further rules are adopted.
Sources:
Exemptions for Security-based Swaps (www.sec.gov)
Treatment of Certain Communications Involving Security-Based Swaps That May Be Purchased Only By Eligible Contract Participants (www.sec.gov)
