SEC Adopts Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants
Apr 25, 2016
From the Financial Reporting Network
The SEC recently adopted a final rule, Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants, which specifies a comprehensive set of business conduct standards and chief compliance officer (CCO) requirements for security-based swap dealers and major security-based swap participants (security-based swap entities). The rule applies provisions of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act by implementing a framework for regulating the over-the-counter security-based swap markets.
The rule requires security-based swap entities to comply with various requirements to protect investors by improving transparency, facilitating informed customer decision-making, and strengthening standards of professional conduct. For example, security-based swap entities are required to disclose material information about the security-based swap, including material risks, characteristics, incentives, and conflicts of interest; to communicate with potential counterparties in a fair and balanced manner based on principles of fair dealing and good faith; and to adhere to other professional standards of conduct. The rule also establishes requirements for dealings with special entities, including municipalities, pension plans, and endowments. The rule requires security-based swap entities to designate a CCO, and impose duties and responsibilities on that CCO. Finally, the rule addresses the cross-border application of these requirements and the potential availability of substituted compliance.
The rule will be effective June 27, 2016. Section IV.B of the final rule illustrates the multiple compliance dates that apply to specific provisions of the rule.