Effective October 12, 2012, the SEC and CFTC will put into effect rules that specify whether a given product counts as a “swap,” “security-based swap,” “mixed swap,” or none of the above. The new rules also require market participants to keep the same books and records for “security-based swap agreements” as would be required for swaps. Continue reading
Effective October 12, 2012, the SEC and CFTC will put into effect rules that specify whether a given product counts as a “swap,” “security-based swap,” “mixed swap,” or none of the above. The new rules also require market participants to keep the same books and records for “security-based swap agreements” as would be required for swaps.
The CFTC regulates swaps, the SEC regulates security-based swaps, and both agencies regulate mixed swaps. The CFTC regulates security-based swap agreements, but the SEC has antifraud authority over those products.
Products that are not swaps or security-based swaps include:
-insurance that falls under 1) the grandfather provision, 2) the product safe harbor, or 3) the enumerated product safe harbor
-security forwards
-consumer transactions
-commercial transactions
Products that are considered swaps include:
-Title VII instruments on interest rates and other monetary rates
-Title VII instruments on rates or yields of U.S. Treasuries and certain other exempt securities
-Title VII instruments on futures (other than futures on foreign government debt securities)
-broad-based index credit default swaps that require cash settlement or auction settlement
Products that are considered security-based swaps include:
-Title VII instruments on yields of a non-exempt debt security, loan, or narrow-based security index
-Total Return Swaps on a single security, loan, or narrow-based security index
-Title VII instruments on security futures
Products that are considered mixed swaps include:
-Total Return Swaps that include interest-rate optionality or a non-securities component
-broad-based index credit default swaps that require mandatory physical settlement
Products that may be swaps or security-based swaps:
-Title VII instruments based on futures contracts on certain foreign government debt securities
-index credit default swaps
-foreign exchange forwards
-foreign exchange swaps
-foreign currency options (other than foreign currency options traded on a national securities exchange)
-non-deliverable forward contracts involving foreign exchange
-currency and cross-currency swaps
-forward rate agreements
-contracts for differences
-certain combinations and permutations of (or options on) swaps and security-based swaps
Market participants may request a determination from the SEC and the CFTC of whether a product is a swap, a security-based swap, or a mixed swap.
Sources:
SEC Approves Rules and Interpretations on Key Terms for Regulating Derivatives (SEC Release 2012-130)
Further Definition of “Swap,” “Security-Based Swap,” and “Security-Based Swap Agreement”; Mixed Swaps; Security-Based Swap Agreement Recordkeeping (Federal Register publication)
This alert applies to the Series 62, Series 79, Series 99, Series 7, Series 66, and Series 65.
