83 FR 55486 - Commission Statement on Certain Provisions of Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 215 (November 6, 2018)

Page Range		55486-55488
FR Document		2018-24213
The Commission is issuing a statement regarding certain provisions of its Business Conduct Standards for Security-Based Swap Dealers and Major Security-Based Swap Participants. The statement sets forth the Commission's position, for five years after the compliance date for the security-based swap dealer and major security-based swap participant registration rules, that certain actions with respect to provisions of the Commission's business conduct standards will not provide a basis for a Commission enforcement action.
Federal Register, Volume 83 Issue 215 (Tuesday, November 6, 2018)
[Federal Register Volume 83, Number 215 (Tuesday, November 6, 2018)]
[Rules and Regulations]
[Pages 55486-55488]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-24213]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-84511; File No. S7-24-18]
RIN 3235-AL10


Commission Statement on Certain Provisions of Business Conduct 
Standards for Security-Based Swap Dealers and Major Security-Based Swap 
Participants

AGENCY: Securities and Exchange Commission.

ACTION: Commission statement.

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SUMMARY: The Commission is issuing a statement regarding certain 
provisions of its Business Conduct Standards for Security-Based Swap 
Dealers and Major Security-Based Swap Participants. The statement sets 
forth the Commission's position, for five years after the compliance 
date for the security-based swap dealer and major security-based swap 
participant registration rules, that certain actions with respect to 
provisions of the Commission's business conduct standards will not 
provide a basis for a Commission enforcement action.

DATES: The Commission's statement is effective November 6, 2018.

FOR FURTHER INFORMATION CONTACT: Lourdes Gonzalez, Assistant Chief 
Counsel; Joanne Rutkowski, Assistant Chief Counsel; Devin Ryan, Senior 
Special Counsel; Kelly Shoop, Special Counsel; or Neel Maitra, Special 
Counsel, at 202-551-5550, in the Division of Trading and Markets, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549.

SUPPLEMENTARY INFORMATION: 

I. Introduction

    In 2012 the U.S. Commodity Futures Trading Commission (``CFTC'') 
adopted business conduct rules for swap dealers and major swap 
participants (``CFTC's Business Conduct Rules'').\1\ To assist the 
swaps industry in implementing and complying with the CFTC's Business 
Conduct Rules, industry participants developed standardized 
counterparty

[[Page 55487]]

relationship documentation that has been in force since 2012, and is 
currently used by over 22,000 counterparties.\2\
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    \1\ Business Conduct Standards for Swap Dealers and Major Swap 
Participants with Counterparties, 77 FR 9734 (Feb. 17, 2012).
    \2\ See International Swaps and Derivatives Association, Inc. 
(``ISDA'') DF Protocol, List of Adhering Parties, available at 
https://www.isda.org/protocol/isda-august-2012-df-protocol/adhering-parties.
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    In 2016, pursuant to Section 15F of the Securities Exchange Act of 
1934 (``Exchange Act''),\3\ the Commission adopted final rules imposing 
business conduct standards (the ``SEC's Business Conduct Rules'') for 
security-based swap dealers (``SBS Dealers'') and major security-based 
swap participants (``Major SBS Participants'' and, together with SBS 
Dealers, ``SBS Entities'').\4\ As noted in the Commission's Adopting 
Release, the Commission endeavored to harmonize its rules with 
analogous CFTC requirements where possible to create efficiencies for 
entities that have already established infrastructure for compliance 
with analogous CFTC requirements.\5\ In certain instances, however, the 
Commission's requirements, and the associated representations that 
would be required under standardized counterparty relationship 
documentation, diverge from those of the analogous CFTC requirements, 
which are reflected in existing standardized counterparty relationship 
documentation. Market participants have expressed concerns about 
practical compliance difficulties presented by certain of these 
differences.\6\
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    \3\ In this document, all references to ``Rules'' shall mean 
those under the Exchange Act.
    \4\ Business Conduct Standards for Security-Based Swap Dealers 
and Major Security-Based Swap Participants, 81 FR 29960 (May 13, 
2016) (``Adopting Release''). Although the rules are now effective, 
the Commission determined not to require compliance with them until 
entities are required to register as SBS Dealers or Major SBS 
Participants. See id. at 30081.
    \5\ Id. at 29964.
    \6\ See, e.g., Letter from Securities Industry and Financial 
Markets Association (``SIFMA'') and Institute of International 
Bankers, June 21, 2018 (``SIFMA June 2018 Letter''); Letter from 
Church Alliance to Brett Redfearn, June 26, 2018 (``Church Alliance 
June 2018 Letter'').
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    The Commission is mindful of the time and costs that may be 
associated with a documentation initiative that would be undertaken 
solely to address the SEC's Business Conduct Rules. Therefore, to 
minimize potential market disruptions to existing counterparty 
relationships resulting solely from documentation implementation issues 
(upon their compliance date when compliance will first be required), 
for a limited time period, the Commission takes the position that 
certain actions with respect to provisions of the SEC's Business 
Conduct Rules will not provide a basis for a Commission enforcement 
action, as set forth below.\7\
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    \7\ To the extent there are additional differences between the 
CFTC's Business Conduct Rules and the SEC's Business Conduct Rules 
that otherwise present documentation implementation difficulties 
that could result in potential for market disruption, the Commission 
encourages market participants to provide that information to the 
Commission.
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II. Commission Position

    The Commission's position \8\ is expressly limited to the SEC's 
Business Conduct Rules, 17 CFR 240.15Fh-1 (Rule 15Fh-1) through 
240.15Fh-6 (Rule 15Fh-6), set forth below. The Commission emphasizes 
that its position is limited to the Commission's enforcement discretion 
with respect to Rules 15Fh-1 through 15Fh-6, and does not modify or 
change any contractual rights between counterparties to security-based 
swaps. Further, nothing in the Commission's position excuses compliance 
with Rule 15Fh-1(b), under which an SBS Entity cannot rely on a 
representation if it has information that would cause a reasonable 
person to question the accuracy of the representation.\9\ Unless 
specified below, all terms shall have the definitions set forth in 
Exchange Act Section 15F(h) and Rules 15Fh-1 through 15Fh-6. Finally, 
the Commission's position applies only to the exercise of its 
enforcement discretion as set forth in subsections A. through D. below, 
and only until five years after the compliance date for the SBS Entity 
registration rules.
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    \8\ The Commission's position is an agency statement of general 
applicability with future effect designed to implement, interpret, 
or prescribe law or policy.
    \9\ See Section II.D., infra, for the Commission's position on 
written representations that were previously obtained in connection 
with swaps.
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A. Non-ERISA Employee Benefit Plans

    For purposes of the provisions relating to special entities under 
Rules 15Fh-1 through 15Fh-6, it would not provide a basis for an 
enforcement action if an SBS Entity considers an employee benefit plan 
as defined in Rule 15Fh-2(d)(4) \10\ not to be a special entity where: 
(i) The plan has previously represented in writing to the SBS Entity 
that it is not a special entity for swap purposes under the CFTC's 
Business Conduct Rules; (ii) at a reasonably sufficient time \11\ prior 
to entering into a security-based swap with the plan, the SBS Entity 
notifies the plan in writing that it may opt into special entity status 
under Rule 15Fh-2(d)(4); \12\ and (iii) the plan does not opt into 
special entity status.
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    \10\ Rule 15Fh-2(d)(4) defines ``special entity'' to include: 
``An employee benefit plan as defined in section 3 of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1002) and not 
otherwise defined as a special entity, unless such employee benefit 
plan elects not to be a special entity by notifying a security-based 
swap dealer or major security-based swap participant of its election 
prior to entering into a security-based swap with the particular 
security-based swap dealer or major security-based swap 
participant.''
    \11\ See, e.g., Adopting Release, 81 FR at 29982 (``[I]t is 
important that the required disclosures be made at a reasonably 
sufficient time before the execution of the transaction to allow the 
counterparty to assess the disclosures.'').
    \12\ This notification requirement mirrors the approach set 
forth in CFTC Regulation at 17 CFR 23.401(c)(6).
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B. Written Representations: SBS Dealers Not Acting as Advisors

    Reliance on the representations described below during the five 
years in which this Commission position is in effect would not provide 
a basis for an enforcement action:
     An SBS Dealer seeking to establish that it is not acting 
as an advisor to a special entity within the meaning of Rule 15Fh-2(a) 
relies on a written representation that a special entity will not rely 
on recommendations provided by the SBS Dealer \13\ instead of having 
the special entity represent in writing that it acknowledges that the 
SBS Dealer is not acting as an advisor when the SBS Dealer recommends a 
security-based swap or a trading strategy that involves the use of a 
security-based swap to the special entity.\14\
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    \13\ This written representation mirrors the requirement set 
forth in CFTC Regulation at 17 CFR 23.440(b)(2)(ii), the analogous 
provision to Rule 15Fh-2(a)(2)(i)(A).
    \14\ See Rule 15Fh-2(a)(2)(i)(A).
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     With respect to a special entity as defined in Rule 15Fh-
2(d)(3) (e.g., an employment plan subject to Title I of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1002) (``ERISA 
Special Entity'')), an SBS Dealer relies on a representation from the 
ERISA Special Entity's fiduciary that such fiduciary is not relying on 
recommendations provided by the SBS Dealer \15\ instead of having the 
fiduciary represent in writing that it acknowledges that the SBS Dealer 
is not acting as an advisor when it recommends a security-based swap or 
a trading strategy that involves the use of a security-based swap to 
the ERISA Special Entity.\16\
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    \15\ This written representation mirrors the requirement set 
forth in CFTC Regulation 23.440(b)(1)(ii), the analogous provision 
to Rule 15Fh-2(a)(1)(ii).
    \16\ See Rule 15Fh-2(a)(1)(ii).
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     An SBS Dealer relies on a written representation from the 
ERISA Special Entity that any recommendation it receives from the SBS 
Dealer materially affecting a security-based swap transaction will be 
evaluated by a

[[Page 55488]]

fiduciary before the transaction occurs, instead of having an ERISA 
Special Entity represent in writing that any recommendation it receives 
from the SBS Dealer involving a security-based swap transaction will be 
evaluated by a fiduciary before the transaction is entered into.\17\
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    \17\ See Rule 15Fh-2(a)(1)(iii)(B). This written representation 
mirrors the requirement set forth in CFTC Regulation 23.440(b), the 
analogous provision to Rule 15Fh-2(a)(1)(iii)(B).
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C. Safe Harbor for SBS Dealers and Major SBS Participants Acting as 
Counterparties to Special Entities

    Rule 15Fh-5(b) provides a safe harbor for SBS Entities acting as 
counterparties to a special entity other than an ERISA Special Entity. 
As set forth in Rule 15Fh-5(b)(1)(ii)(B), to avail itself of the safe 
harbor the SBS Entity must among other things, obtain written 
representations from the representative of the special entity (the 
``qualified independent representative'') that such representative: (1) 
Meets the independence test as required by Rule 15Fh-5(a)(1)(vii); (2) 
has the knowledge required under Rule 15Fh-5(a)(1)(i); (3) is not 
subject to a statutory disqualification under Rule 15Fh-5(a)(1)(ii); 
(4) undertakes a duty to act in the best interests of the special 
entity as required by Rule 15Fh-5(a)(1)(iii); and (5) is subject to the 
requirements regarding political contributions, as applicable, under 
Rule 15Fh-5(a)(1)(vi).
    It would not provide a basis for an enforcement action with respect 
to relying on the safe harbor in Rule 15Fh-5(b)(1)(ii)(B) if, during 
the five years in which this Commission position is in effect, instead 
of obtaining these written representations, an SBS Entity relies on a 
written representation from the qualified independent representative 
that the representative has written policies and procedures reasonably 
designed to ensure that the representative satisfies the requirements 
for acting as a qualified independent representative.\18\ This position 
is applicable only to the written representations set forth in Rule 
15Fh-5(b)(1)(ii)(B) and is only applicable where the SBS Entity meets 
all other Commission requirements as set forth in Rule 15Fh-5(b).
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    \18\ The Commission notes that this written representation is 
already required by Rule 15Fh-5(b)(1)(ii)(A), and mirrors the 
analogous requirement set forth in CFTC Regulation at 17 CFR 
23.450(d)(1)(ii)(A).
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D. Reliance on Previously-Obtained Written Representations

    Finally, Rule 15Fh-1(b), as noted above, permits an SBS Entity to 
rely on written representations from the counterparty or its 
representative to satisfy its due diligence requirements under Rules 
15Fh-1 through 15Fh-6, unless the SBS Entity has information that would 
cause a reasonable person to question the accuracy of the 
representation. As the Commission stated when adopting the rule, the 
question of whether reliance on representations that had been obtained 
with respect to the CFTC's Business Conduct Rules would satisfy an SBS 
Entity's obligations under the SEC's Business Conduct Rules will depend 
on the facts and circumstances of the particular matter.\19\ The 
Commission's position is that, for purposes of Rule 15Fh-1(b), it would 
not provide a basis for an enforcement action if, during the five years 
in which this Commission position is in effect, an SBS Dealer relies on 
representations from a counterparty or representative that were 
previously provided in relation to swaps if the SBS Dealer is not aware 
of information that would cause a reasonable person to question the 
accuracy of the representation if the representation were given in 
relation to security-based swaps.\20\
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    \19\ See Adopting Release, 81 FR at 29976.
    \20\ This position applies equally to the written 
representations addressed in Sections II.B. and C., supra.

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    By the Commission.

    Dated: October 31, 2018.
Brent J. Fields,
Secretary.
[FR Doc. 2018-24213 Filed 11-5-18; 8:45 am]
 BILLING CODE 8011-01-P
55486 Federal Register / Vol. 83, No. 215 / Tuesday, November 6, 2018 / Rules and Regulations

7400.11B . . .’’ is corrected to read § 71.1 [Corrected] Issued in Washington, DC, on October 30,
‘‘. . . FAA Order 7400.11C . . .’’. ■ d. On page 46390, column 1, line 12, 2018.
■ b. On page 46388, column 1, line 65, under Amendatory Instruction 2, ‘‘. . . Rodger A. Dean Jr.,
and column 2, line 2, under Availability FAA Order 7400.11B, Airspace Manager, Airspace Policy Group.
and Summary of Documents for Designations and Reporting Points, [FR Doc. 2018–24210 Filed 11–5–18; 8:45 am]
Incorporation by Reference, ‘‘. . . FAA dated August 3, 2017, and effective BILLING CODE 4910–13–P
Order 7400.11B . . .’’ is corrected to September 15, 2017, . . .’’ is corrected
read ‘‘. . . FAA Order 7400.11C . . .’’. to read ‘‘. . . FAA Order 7400.11C,
■ c. On page 46388, column 1, line 52, Airspace Designations and Reporting SECURITIES AND EXCHANGE
under History, ‘‘. . . FAA Order Points, dated August 13, 2018, and COMMISSION
7400.11B, dated August 3, 2017, and effective September 15, 2018, . . .’’.
■ 29. For Docket No. FAA–2017–1088; 17 CFR Part 240
effective September 15, 2017, . . .’’ is
corrected to read ‘‘. . . FAA Order Airspace Docket No. 17–AWP–25 (83 FR
[Release No. 34–84511; File No. S7–24–18]
7400.11C, dated August 13, 2018, and 46390, September 13, 2018).
RIN 3235–AL10
effective September 15, 2018 . . .’’. Correction
■ d. On page 46388, column 1, line 62, ■ a. On page 46390, column 2, line 1, Commission Statement on Certain
under Availability and Summary of under ADDRESSES, ‘‘. . . FAA Order Provisions of Business Conduct
Documents for Incorporation by 7400.11B . . .’’ is corrected to read Standards for Security-Based Swap
Reference, ‘‘. . . FAA Order 7400.11B, ‘‘. . . FAA Order 7400.11C . . .’’. Dealers and Major Security-Based
Airspace Designations and Reporting ■ b. On page 46390, column 3, line 13, Swap Participants
Points, dated August 3, 2017, and and line 16, under Availability and
effective September 15, 2017, . . .’’ is Summary of Documents for AGENCY: Securities and Exchange
corrected to read ‘‘. . . FAA Order Incorporation by Reference, ‘‘. . . FAA Commission.
7400.11C, Airspace Designations and Order 7400.11B . . .’’ is corrected to ACTION: Commission statement.
Reporting Points, dated August 13, read ‘‘. . . FAA Order 7400.11C . . .’’.
2018, and effective September 15, SUMMARY: The Commission is issuing a
■ c. On page 46390, column 2, line 66,
2018, . . .’’. statement regarding certain provisions
under History, ‘‘. . . FAA Order of its Business Conduct Standards for
7400.11B, dated August 3, 2017, and Security-Based Swap Dealers and Major
§ 71.1 [Corrected]
effective September 15, 2017, . . .’’ is Security-Based Swap Participants. The
■ e. On page 46388, column 3, line 46, corrected to read ‘‘. . . FAA Order
under Amendatory Instruction 2, ‘‘. . . statement sets forth the Commission’s
7400.11C, dated August 13, 2018, and position, for five years after the
FAA Order 7400.11B, Airspace effective September 15, 2018 . . .’’.
Designations and Reporting Points, compliance date for the security-based
■ d. On page 46390, column 3, line 10,
dated August 3, 2017, and effective swap dealer and major security-based
under Availability and Summary of
September 15, 2017, . . .’’ is corrected swap participant registration rules, that
Documents for Incorporation by
to read ‘‘. . . FAA Order 7400.11C, certain actions with respect to
Reference, ‘‘. . . FAA Order 7400.11B,
Airspace Designations and Reporting provisions of the Commission’s business
Airspace Designations and Reporting
Points, dated August 13, 2018, and conduct standards will not provide a
Points, dated August 3, 2017, and
effective September 15, 2018, . . .’’. basis for a Commission enforcement
effective September 15, 2017, . . .’’ is
action.
■ 28. For Docket No. FAA–2018–0018; corrected to read ‘‘. . . FAA Order
Airspace Docket No. 17–AGL–20 (83 FR 7400.11C, Airspace Designations and DATES: The Commission’s statement is
46389, September 13, 2018). Reporting Points, dated August 13, effective November 6, 2018.
2018, and effective September 15, FOR FURTHER INFORMATION CONTACT:
Correction 2018, . . .’’. Lourdes Gonzalez, Assistant Chief
■ a. On page 46389, column 1, line 52, Counsel; Joanne Rutkowski, Assistant
§ 71.1 [Corrected] Chief Counsel; Devin Ryan, Senior
and column 2, line 5, under ADDRESSES,
‘‘. . . FAA Order 7400.11B . . .’’ is ■ e. On page 46391, column 1, line 21, Special Counsel; Kelly Shoop, Special
corrected to read ‘‘. . . FAA Order under Amendatory Instruction 2, ‘‘. . . Counsel; or Neel Maitra, Special
7400.11C . . .’’. FAA Order 7400.11B, Airspace Counsel, at 202–551–5550, in the
Designations and Reporting Points, Division of Trading and Markets,
■ b. On page 46389, column 2, line 63,
dated August 3, 2017, and effective Securities and Exchange Commission,
and column 3, line 1, under Availability September 15, 2017, . . .’’ is corrected
and Summary of Documents for 100 F Street NE, Washington, DC 20549.
to read ‘‘. . . FAA Order 7400.11C, SUPPLEMENTARY INFORMATION:
Incorporation by Reference, ‘‘. . . FAA Airspace Designations and Reporting
Order 7400.11B . . .’’ is corrected to Points, dated August 13, 2018, and I. Introduction
read ‘‘. . . FAA Order 7400.11C . . .’’. effective September 15, 2018, . . .’’. In 2012 the U.S. Commodity Futures
■ c. On page 46389, column 2, line 60, ■ 30. For Docket No. FAA–2018–0328; Trading Commission (‘‘CFTC’’) adopted
under Availability and Summary of Airspace Docket No. 18–ASO–7 (83 FR business conduct rules for swap dealers
Documents for Incorporation by 46639, September 14, 2018). and major swap participants (‘‘CFTC’s
Reference, ‘‘. . . FAA Order 7400.11B,
Correction Business Conduct Rules’’).1 To assist the
Airspace Designations and Reporting
swaps industry in implementing and
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Points, dated August 3, 2017, and ■ a. On page 46639, column 3, line 20, complying with the CFTC’s Business
effective September 15, 2017, . . .’’ is under History, ‘‘. . . FAA Order Conduct Rules, industry participants
corrected to read ‘‘. . . FAA Order 7400.11B, dated August 3, 2017, and developed standardized counterparty
7400.11C, Airspace Designations and effective September 15, 2017, . . .’’ is
Reporting Points, dated August 13, corrected to read ‘‘. . . FAA Order 1 Business Conduct Standards for Swap Dealers
2018, and effective September 15, 7400.11C, dated August 13, 2018, and and Major Swap Participants with Counterparties,
2018, . . .’’. effective September 15, 2018 . . .’’. 77 FR 9734 (Feb. 17, 2012).

VerDate Sep<11>2014 16:14 Nov 05, 2018 Jkt 247001 PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 E:\FR\FM\06NOR1.SGM 06NOR1
Federal Register / Vol. 83, No. 215 / Tuesday, November 6, 2018 / Rules and Regulations 55487

relationship documentation that has provide a basis for a Commission reasonably sufficient time 11 prior to
been in force since 2012, and is enforcement action, as set forth below.7 entering into a security-based swap with
currently used by over 22,000 the plan, the SBS Entity notifies the
II. Commission Position
counterparties.2 plan in writing that it may opt into
In 2016, pursuant to Section 15F of The Commission’s position 8 is special entity status under Rule 15Fh–
the Securities Exchange Act of 1934 expressly limited to the SEC’s Business 2(d)(4); 12 and (iii) the plan does not opt
(‘‘Exchange Act’’),3 the Commission Conduct Rules, 17 CFR 240.15Fh–1 into special entity status.
adopted final rules imposing business (Rule 15Fh–1) through 240.15Fh–6
conduct standards (the ‘‘SEC’s Business B. Written Representations: SBS Dealers
(Rule 15Fh–6), set forth below. The
Conduct Rules’’) for security-based Not Acting as Advisors
Commission emphasizes that its
swap dealers (‘‘SBS Dealers’’) and major position is limited to the Commission’s Reliance on the representations
security-based swap participants enforcement discretion with respect to described below during the five years in
(‘‘Major SBS Participants’’ and, together Rules 15Fh–1 through 15Fh–6, and does which this Commission position is in
with SBS Dealers, ‘‘SBS Entities’’).4 As not modify or change any contractual effect would not provide a basis for an
noted in the Commission’s Adopting rights between counterparties to enforcement action:
Release, the Commission endeavored to security-based swaps. Further, nothing • An SBS Dealer seeking to establish
harmonize its rules with analogous in the Commission’s position excuses that it is not acting as an advisor to a
CFTC requirements where possible to compliance with Rule 15Fh–1(b), under special entity within the meaning of
create efficiencies for entities that have which an SBS Entity cannot rely on a Rule 15Fh–2(a) relies on a written
already established infrastructure for representation if it has information that representation that a special entity will
compliance with analogous CFTC would cause a reasonable person to not rely on recommendations provided
requirements.5 In certain instances, question the accuracy of the by the SBS Dealer 13 instead of having
however, the Commission’s representation.9 Unless specified below, the special entity represent in writing
requirements, and the associated all terms shall have the definitions set that it acknowledges that the SBS Dealer
representations that would be required forth in Exchange Act Section 15F(h) is not acting as an advisor when the SBS
under standardized counterparty and Rules 15Fh–1 through 15Fh–6. Dealer recommends a security-based
relationship documentation, diverge Finally, the Commission’s position swap or a trading strategy that involves
from those of the analogous CFTC applies only to the exercise of its the use of a security-based swap to the
requirements, which are reflected in enforcement discretion as set forth in special entity.14
existing standardized counterparty • With respect to a special entity as
subsections A. through D. below, and
relationship documentation. Market defined in Rule 15Fh–2(d)(3) (e.g., an
only until five years after the
participants have expressed concerns employment plan subject to Title I of
compliance date for the SBS Entity
about practical compliance difficulties the Employee Retirement Income
registration rules.
presented by certain of these Security Act of 1974 (29 U.S.C. 1002)
differences.6 A. Non-ERISA Employee Benefit Plans (‘‘ERISA Special Entity’’)), an SBS
The Commission is mindful of the Dealer relies on a representation from
For purposes of the provisions
time and costs that may be associated the ERISA Special Entity’s fiduciary that
relating to special entities under Rules
with a documentation initiative that such fiduciary is not relying on
15Fh–1 through 15Fh–6, it would not
would be undertaken solely to address recommendations provided by the SBS
provide a basis for an enforcement
the SEC’s Business Conduct Rules. Dealer 15 instead of having the fiduciary
action if an SBS Entity considers an
Therefore, to minimize potential market represent in writing that it
employee benefit plan as defined in
disruptions to existing counterparty acknowledges that the SBS Dealer is not
Rule 15Fh–2(d)(4) 10 not to be a special
relationships resulting solely from acting as an advisor when it
entity where: (i) The plan has
documentation implementation issues recommends a security-based swap or a
previously represented in writing to the
(upon their compliance date when trading strategy that involves the use of
SBS Entity that it is not a special entity a security-based swap to the ERISA
compliance will first be required), for a for swap purposes under the CFTC’s
limited time period, the Commission Special Entity.16
Business Conduct Rules; (ii) at a • An SBS Dealer relies on a written
takes the position that certain actions
with respect to provisions of the SEC’s 7 To the extent there are additional differences
representation from the ERISA Special
Business Conduct Rules will not between the CFTC’s Business Conduct Rules and Entity that any recommendation it
the SEC’s Business Conduct Rules that otherwise receives from the SBS Dealer materially
2 See International Swaps and Derivatives present documentation implementation difficulties affecting a security-based swap
Association, Inc. (‘‘ISDA’’) DF Protocol, List of that could result in potential for market disruption, transaction will be evaluated by a
Adhering Parties, available at https://www.isda.org/ the Commission encourages market participants to
protocol/isda-august-2012-df-protocol/adhering- provide that information to the Commission.
11 See, e.g., Adopting Release, 81 FR at 29982
parties. 8 The Commission’s position is an agency

3 In this document, all references to ‘‘Rules’’ shall statement of general applicability with future effect (‘‘[I]t is important that the required disclosures be
designed to implement, interpret, or prescribe law made at a reasonably sufficient time before the
mean those under the Exchange Act.
4 Business Conduct Standards for Security-Based or policy. execution of the transaction to allow the
9 See Section II.D., infra, for the Commission’s counterparty to assess the disclosures.’’).
Swap Dealers and Major Security-Based Swap 12 This notification requirement mirrors the
Participants, 81 FR 29960 (May 13, 2016) position on written representations that were
(‘‘Adopting Release’’). Although the rules are now previously obtained in connection with swaps. approach set forth in CFTC Regulation at 17 CFR
effective, the Commission determined not to require 10 Rule 15Fh–2(d)(4) defines ‘‘special entity’’ to 23.401(c)(6).
13 This written representation mirrors the
compliance with them until entities are required to include: ‘‘An employee benefit plan as defined in
requirement set forth in CFTC Regulation at 17 CFR
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register as SBS Dealers or Major SBS Participants. section 3 of the Employee Retirement Income
See id. at 30081. Security Act of 1974 (29 U.S.C. 1002) and not 23.440(b)(2)(ii), the analogous provision to Rule
5 Id. at 29964. otherwise defined as a special entity, unless such 15Fh–2(a)(2)(i)(A).
14 See Rule 15Fh–2(a)(2)(i)(A).
6 See, e.g., Letter from Securities Industry and employee benefit plan elects not to be a special
15 This written representation mirrors the
Financial Markets Association (‘‘SIFMA’’) and entity by notifying a security-based swap dealer or
Institute of International Bankers, June 21, 2018 major security-based swap participant of its election requirement set forth in CFTC Regulation
(‘‘SIFMA June 2018 Letter’’); Letter from Church prior to entering into a security-based swap with 23.440(b)(1)(ii), the analogous provision to Rule
Alliance to Brett Redfearn, June 26, 2018 (‘‘Church the particular security-based swap dealer or major 15Fh–2(a)(1)(ii).
Alliance June 2018 Letter’’). security-based swap participant.’’ 16 See Rule 15Fh–2(a)(1)(ii).

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Document Created: 2018-11-06 00:18:17
Document Modified: 2018-11-06 00:18:17
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Rules and Regulations
Action		Commission statement.
Dates		The Commission's statement is effective November 6, 2018.
Contact		Lourdes Gonzalez, Assistant Chief Counsel; Joanne Rutkowski, Assistant Chief Counsel; Devin Ryan, Senior Special Counsel; Kelly Shoop, Special Counsel; or Neel Maitra, Special Counsel, at 202-551-5550, in the Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.
FR Citation		83 FR 55486
RIN Number		3235-AL10