The SEC recently adopted new rules that outline the registration process for security-based swap dealers and major security-based swap participants (“SBS Entities”). Section 764 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) amended the Securities Exchange Act of 1934 (the “Exchange Act”) to require the registration of SBS Entities with the SEC. It also authorized the SEC to issue rules outlining the registration process for SBS Entities.
Under the new rules, the SBS Entities must register with the SEC by filing certain forms and certifications electronically through the SEC’s EDGAR filing system. SBS Entities will use one of three types of forms for registration depending on whether they are already registered with the SEC as a broker-dealer, with the CFTC (or its designee) as a swap dealer or major swap participant, or are not registered under any of these designations.
In their applications, the SBS Entities must include two certifications. A senior officer of the applicant must certify that after due inquiry, he or she has reasonably determined that the applicant has developed and implemented written policies and procedures reasonably designed to prevent violations of the federal securities laws and the rules thereunder, and that he or she has documented the process by which he or she reached such determination. In addition, the Chief Compliance Officer (“CCO”) of an SBS Entity must certify that it neither knows, nor in the exercise of reasonable care should have known, that any person associated with it who effects or is involved in effecting security-based swaps on its behalf is subject to statutory disqualification unless otherwise specifically provided by rule, regulation or order of the SEC. In order to support the certification, the CCO, or his or her designee, must review and sign the questionnaire or application for employment executed by associated persons who are natural persons and who effect or are involved in effecting securities-based swaps on the SBS Entity’s behalf.
Under the rules, non-U.S. resident SBS Entities must also obtain a U.S. agent for service of process and an opinion of counsel concluding that the SBS Entities can provide the SEC with access to their books and records and submit to onsite examinations.
If the application is complete, an SBS Entity will be conditionally registered as a security-based swap dealer or major security-based swap participant with the SEC. The SEC will later review the application to either grant ongoing registration or institute proceedings to deny registration of the SBS Entity.
Although the registration rules become effective October 13, 2015, compliance is not required until the later of: six months after the date of publication in the Federal Register of a final rule establishing capital, margin and segregation requirements for SBS Entities; the compliance date of final rules establishing recordkeeping and reporting requirements for SBS Entities; the compliance date of final rules establishing business conduct requirements under the Exchange Act; or the compliance date for final rules establishing a process for a registered SBS Entity to make an application to the SEC to allow an associated person who is subject to a statutory disqualification to effect or be involved in effecting security-based swaps on the SBS Entity’s behalf. For purposes of complying with the registration requirements, persons are not required to begin calculating whether their activities meet the registration thresholds until two months prior to the compliance date of these rules.