On June 25, the SEC adopted the first in a series of rules governing the cross-border reach of its security-based swap regulatory regime. The rules define the term “U.S. person” and provide the test for counting cross-border security-based swap transactions to determine whether a firm must register as a security-based swap dealer or a major security-based swap participant. The final rules also provide a process by which market participants or non-U.S. regulators can request that the SEC make a determination that a foreign regime’s security-based swap rules are comparable to the SEC’s, thereby permitting market participants in that jurisdiction to meet SEC rules through compliance with local law. Finally, the rules provide clarification of the SEC’s view of the cross-border application of its anti-fraud authority for all securities.
The SEC has aligned it registration threshold rules more closely to the CFTC’s cross-border guidance. Specifically, unlike the SEC’s proposed rule, but similar to the CFTC’s guidance, the newly adopted rules require a non-U.S. potential dealer to count security-based swaps with non-U.S. counterparties towards its swap deal de minims threshold where the potential dealer is a “conduit affiliate” or the potential dealer’s transaction is guaranteed by its U.S. affiliate. The newly adopted rules do not require a non-U.S. potential dealer to consider whether its transactions are “conducted within the United States” in counting towards registration threshold. However, the SEC plans to request comment on whether such a conduct test would be appropriate and how to implement it.
These rules do not start the clock ticking on a registration requirement – they are purely definitional. With these definitions in place, however, market participants can now begin analyzing their future registration obligations and can consider what information they will need to gather from their counterparties to determine U.S. person status both for registration purposes, and ultimately, the application of the SEC’s substantive rules.
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