Registered Swap Dealer Exemption
The SEC exempts swap dealers that recommend municipal derivatives or derivatives strategies to municipal entities from registering as municipal advisors, as long as they are registered with the Commodity Futures Trading Commission (CFTC). According to the National Futures Association (NFA), “a swap dealer (SD) is an entity that holds itself out as a dealer in swaps; makes a market in swaps; regularly enters into swaps with counterparties as an ordinary course of business for its own account; or engages in any activity causing the entity to be commonly known in the trade as a dealer or market maker in swaps.” If they make recommendations to the municipal entity, they must make sure that the transaction is suitable for the municipal entity and is in the entity’s best interests. If the dealer wants to avoid this requirement, the municipal entity must tell the swap dealer that they will rely on the advice of a Qualified Independent Representative (QIR), and the swap dealer must disclose that they are not necessarily acting in the best interests of the municipal entity. The swap dealer must also refrain from providing opinions about whether the municipal entity should enter into a recommended swap or not.
A QIR is a municipal advisor that is registered