The Securities and Exchange Commission has adopted new rules defining terms used in regulation of the over-the-counter swaps market. The rule, jointly written with the Commodities Futures Trading Commission, was mandated by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which did not fully define terms like “security-based swap dealer” and “majority security-based swap participant.”
Security-based swaps are based on the underlying performance of a single security, loan, narrow index of securities or events relating to the performance of a single issuer or issuers of securities in such an index. These swaps are regulated by the SEC, while all other swaps are regulated by the CFTC.
In an opening statement before the definitions were announced, commission chair Mary Schapiro said the SEC staff had worked hard to tailor the rules to met the commissioners’ goal of “preserving key counterparty and market protections while promoting regulatory efficiency.” The definitions focus on monetary thresholds to distinguish dealers and market participants who make some security and non-security based swaps as part of their general market strategies and those who focus on such activities.