The adoption of Regulation SE will:

• implement the “trade execution requirement” for SBS and address various issues relating to the requirement, including its cross-border application
• address conflicts of interest at SBSEFs and national securities exchanges that trade SBS
• establish a regime for the registration and regulation of security-based swap execution facilities (SBSEFs)

The new rule will foster consistency between the rules governing SBSEFs and the current rules under the Exchange Act, including conditions that would:

• consider a registered SBSEF to be registered with the SEC as a broker but exempt from some broker requirements
• phase out a current exemption from clearing agency registration for a non-registered entity acting as an SBSEF
• allow the SEC to analyze final actions taken by an SBSEF
• remove from the definition of “exchange” from both registered SBSEFs and SBS clearing agencies that perform certain matching and execution functions

The SEC also adopted Rule 802 (with the exception of the definition of “block trade”) to support consistency across new Regulation SE. Rule 802 establishes definitions of terms used in multiple rules throughout Regulation SE. The rule also enacts the Exchange Act definition of “security-based swap execution facility” but would not include an SEC-registered entity as a clearing agency. The rule would limit its security-based swap matching functions to operation of a trading session that is intended to enhance the accuracy of end-of-day valuations.

The following is guidance for an entity meeting the definition of “security-based swap execution facility”:

• register with the SEC as an SBSEF on new Form SBSEF or register as a national securities exchange
• foreign SBS trading venues may seek an exemption from the definition of “security-based swap execution facility” pursuant to proposed Rule 833(a) (cross-border exemptions for foreign trading venues and relating to the trade execution requirement)

Under the new rule, registered SBSEFs would be required to:

• maintain records of all activities relating to the business of the facility, including a complete audit trail, in a form and manner acceptable to the SEC, for a period of five years
• submit filings with the SEC for new rules, rule amendments, or products
• possess adequate financial, operational, and managerial resources to discharge its responsibilities
• submit information requested by the SEC, including demonstrations that the SBSEF is in compliance with one or more Core Principles, notification of a transfer 50 percent or more of the equity interest in the SBSEF, and information about pending legal proceedings
• create and maintain a program of automated systems and risk analysis to identify and minimize sources of operational risk through the development of appropriate controls and procedures
• implement, comply with, and enforce its rules, including, among others, rules regarding market access, trading and trade processing, the operation of the SBSEF, the financial integrity of SBS on its facility, the exercise of emergency authority, and conflicts of interest
• develop and maintain emergency procedures, backup facilities, and a disaster recovery plan
• oversee trading and market activity to prevent manipulation, price distortion, and delivery or settlement disruptions
• appoint a chief compliance officer (CCO) and establish regulatory and reporting obligations for the CCO
• share public and timely information on price, trading volume, and other trading data on SBS transactions, as required by Regulation SBSR, and publish on its website a Daily Market Data Report

Additionally, Regulation SE requires registered SBSEFs (or SBSEF applicants) to file documents with the SEC using the EDGAR system in Inline XBRL, a structured, machine-readable data language that is designed specifically for the accurate capture and communication of financial information. The requirement would facilitate access, retrieval, analysis, and comparison of the submitted information across different SBSEFs and time periods by the SEC and the public, which increases the informational benefits of various disclosure requirements.

The final rule is effective 60 days following its publication in the Federal Register. For more detailed information regarding the compliance schedule, see Section XVI of the Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities final rule on the SEC’s website.

Source:

SEC Adopts Rules for the Registration and Regulation of Security-Based Swap Execution Facilities (sec.gov)