83 FR 5665 - Order Extending Until February 5, 2019 Certain Temporary Exemptions Under the Securities Exchange Act of 1934 in Connection With the Revision of the Definition of “Security” To Encompass Security-Based Swaps and Request for Comment
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 27 (February 8, 2018)
Federal Register Volume 83, Issue 27 (February 8, 2018)
| Page Range | 5665-5668 | |
| FR Document | 2018-02498 |
[Federal Register Volume 83, Number 27 (Thursday, February 8, 2018)] [Notices] [Pages 5665-5668] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-02498] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-82626; File No. S7-27-11] Order Extending Until February 5, 2019 Certain Temporary Exemptions Under the Securities Exchange Act of 1934 in Connection With the Revision of the Definition of ``Security'' To Encompass Security- Based Swaps and Request for Comment February 2, 2018. I. Introduction The Securities and Exchange Commission (``Commission'') is (i) extending until February 5, 2019 certain temporary exemptive relief originally provided by the Commission in connection with the revision of the definition of ``security'' in the Securities Exchange Act of 1934 (``Exchange Act'') to encompass security-based swaps (``Temporary Exemptions''); \1\ and (ii) requesting comment on whether continuing such exemptive relief beyond February 5, 2019 is necessary or appropriate in the public interest, and is consistent with the protection of investors. --------------------------------------------------------------------------- \1\ See Order Granting Temporary Exemptions under the Securities Exchange Act of 1934 in Connection with the Pending Revisions of the Definition of ``Security'' to Encompass Security-Based Swaps, Exchange Act Release No. 64795 (July 1, 2011), 76 FR 39927 (July 7, 2011) (``Exchange Act Exemptive Order''). --------------------------------------------------------------------------- II. Discussion A. Background Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act \2\ amended the definition of ``security'' under the Exchange Act to expressly encompass security-based [[Page 5666]] swaps.\3\ The expansion of the definition of the term ``security'' to include security-based swaps had the effect of changing the scope of the Exchange Act regulatory provisions that apply to security-based swaps and, in doing so, raised certain complex questions that require further consideration. --------------------------------------------------------------------------- \2\ The Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124, Stat. 1376 (2010) (``Dodd-Frank Act''). \3\ See Section 761(a)(2) of the Dodd-Frank Act (amending Section 3(a)(10) of the Exchange Act (15 U.S.C. 78c(a)(10)). The provisions of Title VII generally became effective on July 16, 2011 (360 days after the enactment of the Dodd-Frank Act) (the ``Effective Date''), unless a provision required a rulemaking, in which case the provision would go into effect ``not less than'' 60 days after publication of the related final rules in the Federal Register or on July 16, 2011, whichever is later. See Section 774 of the Dodd-Frank Act (15 U.S.C. 77b). --------------------------------------------------------------------------- On July 1, 2011, the Commission issued the Exchange Act Exemptive Order granting temporary exemptive relief from compliance with certain provisions of the Exchange Act in connection with the revision of the Exchange Act definition of ``security'' to encompass security-based swaps.\4\ In general, the Exchange Act Exemptive Order granted temporary exemptive relief from compliance with certain provisions of the Exchange Act in connection with security-based swap activity by: (i) Any person who meets the definition of ``eligible contract participant'' (``ECPs'') set forth in Section 1a(12) of the Commodity Exchange Act as of July 20, 2010 (i.e., the day prior to the date the Dodd-Frank Act was signed into law) and (ii) a broker or dealer registered under Section 15(b) of the Exchange Act.\5\ --------------------------------------------------------------------------- \4\ At the time it issued the Exchange Act Exemptive Order, the Commission also adopted interim final Rule 240 under the Securities Act of 1933 (``Securities Act''), interim final Rules 12a-11 and 12h-1(i) under the Exchange Act, and interim final Rule 4d-12 under the Trust Indenture Act (``Trust Indenture Act''). See 17 CFR 230.240, 17 CFR 240.12a-11, 17 CFR 240.12h-1, and 17 CFR 260.4d-12. See also Exemptions for Security-Based Swaps, Securities Act Release No. 9231 (July 1, 2011), 76 FR 40605 (July 11, 2011). This extension order does not address these interim final rules, which are scheduled to expire on February 11, 2018. See Exemptions for Security-Based Swaps, Securities Act Release No. 10305 (Feb. 10, 2017), 82 FR 10703 (Feb. 15, 2017). The Commission recently adopted a rule under the Securities Act to provide that certain communications involving security-based swaps will not be deemed to constitute ``offers'' of such security-based swaps for purposes of Section 5 of the Securities Act. See Treatment of Certain Communications Involving Security-Based Swaps That May Be Purchased Only By Eligible Contract Participants, Securities Act Release No. 10450 (Jan. 5, 2018), 83 FR 2046 (Jan. 16, 2018). The Commission also, on June 15, 2011, issued an exemptive order granting temporary relief from compliance with certain provisions added to the Exchange Act by subtitle B of Title VII of the Dodd-Frank Act with which compliance would have otherwise been required as of the Effective Date. In that order, the Commission provided guidance regarding the provisions of the Exchange Act that were added by Title VII with which compliance was required as of the Effective Date. See Temporary Exemptions and Other Temporary Relief, Together with Information on Compliance Dates for New Provisions of the Securities Exchange Act of 1934 Applicable to Securities-Based Swaps, Exchange Act Release No. 64678 (June 15, 2011), 76 FR 36287 (June 22, 2011). \5\ See Exchange Act Exemptive Order, 76 FR at 39938-39. The Exchange Act Exemptive Order did not provide exemptive relief for any provisions or rules prohibiting fraud, manipulation, or insider trading (other than the prophylactic reporting or recordkeeping requirements such as the confirmation requirements of Exchange Act Rule 10b-10). In addition, the Exchange Act Exemptive Order did not affect the Commission's investigative, enforcement, and procedural authority related to those provisions and rules. See Exchange Act Exemptive Order at 39931, note 34. The Exchange Act Exemptive Order also did not address Sections 12, 13, 14, 15(d), 16, and 17A of the Exchange Act and the rules thereunder. The Commission did, however, issue limited temporary relief from the clearing agency registration requirements under Section 17A(b) for entities providing certain clearing services for security-based swaps. This relief was linked to final rules issued by the Commission relating to the registration of clearing agencies that clear security-based swaps. See Order Pursuant to Section 36 of the Securities Exchange Act of 1934 Granting Temporary Exemptions from Clearing Agency Registration Requirements under Section 17A(b) of the Exchange Act for Entities Providing Certain Clearing Services for Security-Based Swaps, Exchange Act Release No. 64796 (July 1, 2011), 76 FR 39963 (July 7, 2011). The Commission also provided a temporary exemption within the Exchange Act Exemptive Order for Sections 5 and 6 of the Exchange Act and linked the expiration date of that exemptive relief until the earliest compliance date set forth in any of the final rules regarding registration of security-based swap execution facilities. See Exchange Act Exemptive Order, 76 FR at 39934-36. The Exchange Act Exemptive Order further provided that no security-based swap contract entered into on or after July 16, 2011 shall be void or considered voidable by reason of Section 29(b) of the Exchange Act because any person that is a party to the contract violated a provision of the Exchange Act for which the Commission has provided exemptive relief in the Exchange Act Exemptive Order, until such time as the underlying exemptive relief expires. By extending the underlying exemptive relief until February 5, 2019, this order will also extend the relevant Section 29(b) relief until that same date. See Exchange Act Exemptive Order, 76 FR at 39938-39. --------------------------------------------------------------------------- The overall approach of the Exchange Act Exemptive Order was directed toward maintaining the status quo during the implementation process for the Dodd-Frank Act.\6\ In the Exchange Act Exemptive Order, the Commission stated that it would accomplish this ``by preserving the application of particular Exchange Act requirements that already are applicable in connection with instruments that will be `security-based swaps' following the Effective Date [of the Dodd-Frank Act], but deferring the applicability of additional Exchange Act requirements in connection with those instruments explicitly being defined as `securities' as of the Effective Date.'' \7\ --------------------------------------------------------------------------- \6\ See Exchange Act Exemptive Order, 76 FR at 39929. \7\ Id. These instruments generally constituted ``security-based swap agreements'' under the pre-Dodd-Frank Act framework and were already subject to specific antifraud and anti-manipulation provisions under the Exchange Act (including Exchange Act Section 10(b)). Under the Exchange Act Exemption Order, instruments that (before the Effective Date) were security-based swap agreements and (after the Effective Date) constituted security-based swaps were still subject to the application of those Exchange Act provisions. See Exchange Act Exemptive Order, 76 FR at 39930, nn. 24-25. --------------------------------------------------------------------------- In 2014, the Commission extended the expiration dates for the Temporary Exemptions.\8\ In the 2014 Extension Order, the Commission distinguished between: (i) The Temporary Exemptions related to pending security-based swap rulemakings (``Linked Temporary Exemptions''); and (ii) the Temporary Exemptions that generally were not directly related to a specific security-based swap rulemaking (``Unlinked Temporary Exemptions''). The expiration dates for the Linked Temporary Exemptions established by the 2014 Extension Order were the compliance dates for the specific rulemakings to which they were ``linked,'' and the expiration date for the Unlinked Temporary Exemptions was three years following the effective date of the 2014 Extension Order (i.e., February 5, 2017), or such time that the Commission issues an order or rule determining whether continuing exemptive relief is appropriate for security-based swaps with respect to any such Unlinked Temporary Exemptions. This approach was designed to provide the Commission with flexibility while its Dodd-Frank Act rulemaking is still in progress to determine whether continuing relief should be provided for any of the Unlinked Temporary Exemptions.\9\ --------------------------------------------------------------------------- \8\ See Order Extending Temporary Exemptions under the Securities Exchange Act of 1934 in Connection with the Revision of the Definition of ``Security'' to Encompass Security-Based Swaps, and Request for Comment, Exchange Act Release No. 71485 (Feb. 5, 2014), 79 FR 7731 (Feb. 10, 2014) (``2014 Extension Order'') (extending the expiration date for certain Temporary Exemptions to February 5, 2017). See also Further Definition of ``Swap,'' ``Security-Based Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, Exchange Act Release No. 67453 (July 18, 2012), 77 FR 48207 (Aug. 13, 2012) (``Product Definitions Adopting Release'') (extending the expiration date of the Temporary Exemptions to February 11, 2013); Order Extending Temporary Exemptions under the Securities Exchange Act of 1934 in Connection with the Revision of the Definition of ``Security'' to Encompass Security-Based Swaps, and Request for Comment, Exchange Act Release No. 68864 (Feb. 7, 2013), 78 FR 10218 (Feb. 13, 2013) (extending the expiration date to February 11, 2014). \9\ See 2014 Extension Order, 79 FR at 7731. The 2014 Extension Order also linked the expiration date of the Linked Temporary Exemptions to the compliance date for such rulemakings. The 2014 Extension Order identified the Linked Temporary Exemptions as those related to: (1) Capital and margin requirements applicable to a broker or dealer (Sections 7 and 15(c)(3), Regulation T, and Exchange Act Rules 15c3-1, 15c3-3, and 15c3-4); (2) recordkeeping requirements applicable to a broker or dealer (Sections 17(a) and 17(b) and Exchange Act Rules 17a-3, 17a-4, 17a-5, 17a-11, and 17a- 13); (3) registration requirements under Section 15(a)(1), and the other requirements of the Exchange Act and the rules and regulations thereunder that apply to a ``broker'' or ``dealer'' that is not registered with the Commission; (4) Exchange Act Rule 10b-10; and (5) Regulation ATS. Accordingly, as applicable, the Commission extended these exemptions until the compliance date for pending rulemakings concerning: capital, margin, and segregation requirements for security-based swap dealers and major security- based swap participants; recordkeeping and reporting requirements for broker-dealers, security-based swap dealers, and major security- based swap participants; security-based swap trade acknowledgements; and registration requirements for security-based swap execution facilities. The Linked Temporary Exemptions are not addressed in this order and will be separately considered in connection with the related security-based swap rulemakings. The Commission has already addressed some of the Linked Temporary Exemptions. For example, on June 8, 2016, the Commission adopted new rules for trade acknowledgement and verification of security-based swap transactions. See Trade Acknowledgement and Verification of Security-Based Swap Transactions, Exchange Act Release No. 78011 (June 8, 2016), 81 FR 39807 (June 17, 2016) (``Trade Acknowledgement Release''). In that release, the Commission described the application of Exchange Act Rule 10b-10 to transactions in security- based swaps and noted that the Linked Temporary Exemption relating to Exchange Act Rule 10b-10 would expire upon the compliance date of the new Rule 15Fi-2. See Trade Acknowledgement Release, 81 FR at 39824-25, n. 189. --------------------------------------------------------------------------- [[Page 5667]] The Commission most recently extended the expiration date of the Unlinked Temporary Exemptions until February 5, 2018.\10\ In the 2017 Extension Order, the Commission also requested comment on whether continuing exemptive relief is necessary beyond February 5, 2018.\11\ Two commenters expressed support for extending the exemptive relief, with one reiterating its prior request that the Commission provide permanent exemptive and other relief to security-based swap market participants from the Exchange Act and the Securities Act.\12\ --------------------------------------------------------------------------- \10\ See Order Extending Certain Temporary Exemptions under the Securities Exchange Act of 1934 in Connection with the Revision of the Definition of ``Security'' to Encompass Security-Based Swaps and Request for Comment, Exchange Act Release No. 79833 (Jan. 18, 2017), 82 FR 8467 (Jan. 25, 2017) (``2017 Extension Order''). \11\ Comments received are available at https://www.sec.gov/comments/s7-27-11/s72711.shtml. The Commission did not receive any comments in response to the request for comment in the 2014 Extension Order. However, in 2012, the Commission received a request from market participants to extend certain of the Temporary Exemptions, citing concerns that key issues and questions regarding the application of the federal securities laws remained unresolved and continuing concerns about the potential for unnecessary disruption to the security-based swap market. See SIFMA Request for Extension of the Expiration Date of the SEC's Exchange Act Exemptive Order and SBS Interim final Rules (Dec. 20, 2012), which is available at http://www.sec.gov/comments/s7-27-11/s72711-12.pdf. \12\ See comment from Layla Spencer, dated January 30, 2017; and letters from Kyle Brandon, Managing Director, SIFMA, dated February 2, 2017 (``SIFMA Letter I'') and January 11, 2018 (``SIFMA Letter II'') (requesting that the Commission further extend the exemptive relief for the Unlinked Temporary Exemptions). For details regarding SIFMA's request for permanent exemptive and other relief, see Draft SIFMA SBS Exemptive Relief Request (Oct. 20, 2011), which is available at https://www.sec.gov/comments/s7-27-11/s72711-7.pdf, and SIFMA SBS Exemptive Relief Request (Dec. 5, 2011), which is available at https://www.sec.gov/comments/s7-27-11/s72711-10.pdf. Two other commenters provided statements that are not germane to the consideration of the extension. --------------------------------------------------------------------------- B. Extension of Unlinked Temporary Exemptions Since the issuance of the 2014 Extension Order, the Commission has implemented a substantial portion of the regulatory regime for security-based swaps set forth in Title VII of the Dodd-Frank Act.\13\ However, the Commission is still in the process of finalizing its rules under Title VII of the Dodd-Frank Act.\14\ Therefore, the Commission believes it is necessary or appropriate in the public interest, and consistent with the protection of investors to extend the Unlinked Temporary Exemptions until February 5, 2019 to avoid any potential market disruption stemming from the application of certain Exchange Act provisions and rules to security-based swap activities. This approach also will provide the Commission with additional time to consider the potential impact of the revision of the Exchange Act definition of ``security.'' --------------------------------------------------------------------------- \13\ See, e.g., Regulation SBSR--Reporting and Dissemination of Security-Based Swap Information, Exchange Act Release No. 74244 (Feb. 11, 2015), 80 FR 14563 (Mar. 19, 2015); Security-Based Swap Data Repository Registration, Duties, and Core Principles, Exchange Act Release No. 74246 (Feb. 11, 2015), 80 FR 14437 (Mar. 19, 2015); Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, Exchange Act Release No. 75611 (Aug. 5, 2015), 80 FR 48963 (Aug. 14, 2015); Security-Based Swap Transactions Connected with a Non-U.S. Person's Dealing Activity That Are Arranged, Negotiated, or Executed By Personnel Located in a U.S. Branch or Office or in a U.S. Branch or Office of an Agent; Security-Based Swap Dealer De Minimis Exception, Exchange Act Release No. 77104 (Feb. 10, 2016), 81 FR 8597 (Feb. 19, 2016); Trade Acknowledgement Release; Business Conduct Standards for Security- Based Swap Dealers and Major Security-Based Swap Participants, Exchange Act Release 77617 (Apr. 14, 2016), 81 FR 29960 (May 13, 2016); Regulation SBSR--Reporting and Dissemination of Security- Based Swap Information, Exchange Act Release No. 78321 (July 14, 2016), 81 FR 53545 (Aug. 12, 2016); Access to Data Obtained by Security-Based Swap Data Repositories, Exchange Act Release No. 78716 (Aug. 29, 2016), 81 FR 60585 (Sept. 2, 2016). \14\ See, e.g., Registration and Regulation of Security-Based Swap Execution Facilities, Exchange Act Release No. 63825 (Feb. 2, 2011), 76 FR 10948 (Feb. 28, 2011); Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security- Based Swap Participants and Capital Requirements for Broker-Dealers, Exchange Act Release No. 68071 (Oct. 18, 2012), 77 FR 70213 (Nov. 23, 2012); Recordkeeping and Reporting Requirements for Security- Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers; Capital Rule for Certain Security-Based Swap Dealers; Proposed Rules, Exchange Act Release No. 71958 (Apr. 17, 2014), 79 FR 25194 (May 2, 2014); Applications by Security-Based Swap Dealers or Major Security-Based Swap Participants for Statutorily Disqualified Associated Person To Effect or Be Involved in Effecting Security-Based Swaps, Exchange Act Release No. 75612 (Aug 5, 2015), 80 FR 51684 (Aug. 25, 2015). --------------------------------------------------------------------------- As noted above, one commenter has suggested that the Commission extend the expiration date for the Unlinked Temporary Exemptions until a time that the Commission can provide appropriate permanent relief and other relief to security-based swap market participants from the federal securities laws that apply to security-based swaps due to their inclusion in the definition of ``security'' under the Exchange Act.\15\ The Commission recognizes that the security-based swap market and corresponding regulatory regime have continued to develop since it originally issued the Exchange Act Exemptive Order in 2011. While the Commission has adopted many of the rules required under Title VII, it has proposed but not yet finalized others, including rules relating to the capital, margin, and segregation requirements for security-based swap dealers and major security-based swap participants. Before the Commission considers any permanent exemptive relief, the Commission believes that additional time will be beneficial to evaluate the new regulatory regime and its impact on the market for security-based swaps once the Commission has finalized its rulemakings. Therefore, at this time, the Commission is not making a determination on whether permanent relief should be provided for the Unlinked Temporary Exemptions. --------------------------------------------------------------------------- \15\ See SIFMA Letter I and SIFMA Letter II. --------------------------------------------------------------------------- Accordingly, pursuant to its authority under Section 36 of the Exchange Act,\16\ the Commission believes it is necessary or appropriate in the public interest, and consistent with the protection of investors to extend the expiration of the Unlinked Temporary Exemptions until February 5, 2019. --------------------------------------------------------------------------- \16\ 15 U.S.C. 78mm. Section 36 of the Exchange Act authorizes the Commission to conditionally or unconditionally exempt, by rule, regulation, or order any person, security, or transaction (or any class or classes of persons, securities, or transactions) from any provision of the Exchange Act or any rule or regulation thereunder, to the extent such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors. --------------------------------------------------------------------------- III. Solicitation of Comments The Commission is providing interested parties the opportunity to comment on whether any relief should be granted with respect to any specific Unlinked Temporary Exemption(s) beyond February 5, 2019. The [[Page 5668]] Commission recognizes that the security-based swap market and corresponding regulatory regime have developed in the period of time since the Commission originally issued the Exchange Act Exemptive Order, and will continue to do so. As such, to determine whether permanent exemptive relief is necessary or appropriate in the public interest, and consistent with the protection of investors, the Commission invites comments on the relief and requests that interested parties provide detailed and updated information relating to the Unlinked Temporary Exemptions. To the extent that interested parties request specific relief for any of the Unlinked Temporary Exemptions beyond February 5, 2019, the Commission encourages any such interested parties to be detailed in any request as to the circumstances in which the Exchange Act provision or rule applies to security-based swaps or security-based swap market participants, and why relief would be necessary. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's internet comment form (http://www.sec.gov/rules/exorders.shtml); or Send an email to rule-comments@sec.gov. Please include File Number S7-27-11 on the subject line; or Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F St. NE, Washington, DC 20549-1090. All submissions should refer to File Number S7-27-11. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (http://www.sec.gov/rules/exorders.shtml). Comments are also available for website viewing and printing in the Commission's Public Reference Room, 100 F St. NE, Washington, DC 20549 on official business days between the hours of 10 a.m. and 3 p.m. All comments received will be posted without change. Persons submitting comments are cautioned that the Commission does not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. IV. Conclusion It is hereby ordered, pursuant to Section 36 of the Exchange Act, that the Unlinked Temporary Exemptions contained in the Exchange Act Exemptive Order and extended in the 2017 Extension Order in connection with the revisions of the Exchange Act definition of ``security'' to encompass security-based swaps are extended until February 5, 2019. By the Commission. Brent J. Fields, Secretary. [FR Doc. 2018-02498 Filed 2-7-18; 8:45 am] BILLING CODE 8011-01-P
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weight to recent observations, would received, if the Commission notifies the will be posted without change. Persons
permit NSCC to more effectively clearing agency in writing that it does submitting comments are cautioned that
measure the risk of a rapid change in not object to the proposed change and we do not redact or edit personal
market price volatility. The addition of authorizes the clearing agency to identifying information from comment
the Gap Risk Measure and the Portfolio implement the proposed change on an submissions. You should submit only
Margin Floor would also provide NSCC earlier date, subject to any conditions information that you wish to make
with additional measurements of the imposed by the Commission. available publicly. All submissions
market price volatility of a Member’s The clearing agency shall post notice should refer to File Number SR–NSCC–
Net Unsettled Position, enabling NSCC on its website of proposed changes that 2017–808 and should be submitted on
to assess a VaR Charge that accounts for are implemented. or before February 23, 2018.
the risks those charges are designed to The proposal shall not take effect
until all regulatory actions required By the Commission.
address, as described above.
Finally, NSCC is proposing to with respect to the proposal are Eduardo A. Aleman,
eliminate the MMD Charge because this completed. Assistant Secretary.
component of the Clearing Fund has IV. Solicitation of Comments [FR Doc. 2018–02543 Filed 2–7–18; 8:45 am]
only a limited application and, as such, BILLING CODE 8011–01–P
does not provide as effective a Interested persons are invited to
measurement of the risk presented by submit written data, views and
Net Unsettled Positions that are arguments concerning the foregoing, SECURITIES AND EXCHANGE
concentrated in certain securities as including whether the Advance Notice COMMISSION
other proposed and existing risk is consistent with the Clearing
management measures. Therefore, the Supervision Act. Comments may be
[Release No. 34–82626; File No. S7–27–11]
proposal to eliminate this charge would submitted by any of the following
enable NSCC to remove an unnecessary methods: Order Extending Until February 5, 2019
component from the Clearing Fund Electronic Comments Certain Temporary Exemptions Under
calculation, and would help NSCC to the Securities Exchange Act of 1934 in
rely on an appropriate method of • Use the Commission’s internet
comment form (http://www.sec.gov/ Connection With the Revision of the
measuring its exposures to this risk. Definition of ‘‘Security’’ To Encompass
The proposed changes are designed to rules/sro.shtml); or
• Send an email to rule-comments@ Security-Based Swaps and Request for
assist NSCC in maintaining a risk-based Comment
margin system that considers, and sec.gov. Please include File Number SR–
produces margin levels commensurate NSCC–2017–808 on the subject line. February 2, 2018.
with, the risks and particular attributes Paper Comments
of portfolios that exhibit idiosyncratic I. Introduction
• Send paper comments in triplicate
risk attributes, are more susceptible to The Securities and Exchange
to Secretary, Securities and Exchange
price volatility caused by to gap risk Commission (‘‘Commission’’) is (i)
Commission, 100 F Street NE,
events, and contain concentrated Net extending until February 5, 2019 certain
Washington, DC 20549.
Unsettled Positions. Therefore, NSCC temporary exemptive relief originally
believes the proposed change is All submissions should refer to File
Number SR–NSCC–2017–808. This file provided by the Commission in
consistent with Rule 17Ad–22(e)(6)(i) connection with the revision of the
and (v) under the Act.44 number should be included on the
subject line if email is used. To help the definition of ‘‘security’’ in the Securities
III. Date of Effectiveness of the Advance Commission process and review your Exchange Act of 1934 (‘‘Exchange Act’’)
Notice, and Timing for Commission comments more efficiently, please use to encompass security-based swaps
Action only one method. The Commission will (‘‘Temporary Exemptions’’); 1 and (ii)
The proposed change may be post all comments on the Commission’s requesting comment on whether
implemented if the Commission does internet website (http://www.sec.gov/ continuing such exemptive relief
not object to the proposed change rules/sro.shtml). Copies of the beyond February 5, 2019 is necessary or
within 60 days of the later of (i) the date submission, all subsequent appropriate in the public interest, and is
that the proposed change was filed with amendments, all written statements consistent with the protection of
the Commission or (ii) the date that any with respect to the Advance Notice that investors.
additional information requested by the are filed with the Commission, and all II. Discussion
Commission is received. The clearing written communications relating to the
agency shall not implement the Advance Notice between the A. Background
proposed change if the Commission has Commission and any person, other than
those that may be withheld from the Title VII of the Dodd-Frank Wall
any objection to the proposed change.
public in accordance with the Street Reform and Consumer Protection
The Commission may extend the
provisions of 5 U.S.C. 552, will be Act 2 amended the definition of
period for review by an additional 60
days if the proposed change raises novel available for website viewing and ‘‘security’’ under the Exchange Act to
or complex issues, subject to the printing in the Commission’s Public expressly encompass security-based
Commission providing the clearing Reference Room, 100 F Street NE,
1 See Order Granting Temporary Exemptions
agency with prompt written notice of Washington, DC 20549 on official
daltland on DSKBBV9HB2PROD with NOTICES
under the Securities Exchange Act of 1934 in
the extension. A proposed change may business days between the hours of Connection with the Pending Revisions of the
be implemented in less than 60 days 10:00 a.m. and 3:00 p.m. Copies of the Definition of ‘‘Security’’ to Encompass Security-
from the date the advance notice is filing also will be available for Based Swaps, Exchange Act Release No. 64795 (July
inspection and copying at the principal 1, 2011), 76 FR 39927 (July 7, 2011) (‘‘Exchange Act
filed, or the date further information Exemptive Order’’).
requested by the Commission is office of NSCC and on DTCC’s website 2 The Dodd-Frank Wall Street Reform and
(http://dtcc.com/legal/sec-rule- Consumer Protection Act, Public Law 111–203, 124,
44 17 CFR 240.17Ad–22(e)(6)(i) and (v). filings.aspx). All comments received Stat. 1376 (2010) (‘‘Dodd-Frank Act’’).
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![5666 Federal Register / Vol. 83, No. 27 / Thursday, February 8, 2018 / Notices
swaps.3 The expansion of the definition the day prior to the date the Dodd-Frank In 2014, the Commission extended the
of the term ‘‘security’’ to include Act was signed into law) and (ii) a expiration dates for the Temporary
security-based swaps had the effect of broker or dealer registered under Exemptions.8 In the 2014 Extension
changing the scope of the Exchange Act Section 15(b) of the Exchange Act.5 Order, the Commission distinguished
regulatory provisions that apply to The overall approach of the Exchange between: (i) The Temporary Exemptions
security-based swaps and, in doing so, Act Exemptive Order was directed related to pending security-based swap
raised certain complex questions that toward maintaining the status quo rulemakings (‘‘Linked Temporary
require further consideration. during the implementation process for Exemptions’’); and (ii) the Temporary
On July 1, 2011, the Commission the Dodd-Frank Act.6 In the Exchange Exemptions that generally were not
issued the Exchange Act Exemptive Act Exemptive Order, the Commission directly related to a specific security-
Order granting temporary exemptive stated that it would accomplish this ‘‘by based swap rulemaking (‘‘Unlinked
relief from compliance with certain preserving the application of particular Temporary Exemptions’’). The
provisions of the Exchange Act in Exchange Act requirements that already expiration dates for the Linked
connection with the revision of the are applicable in connection with Temporary Exemptions established by
Exchange Act definition of ‘‘security’’ to instruments that will be ‘security-based the 2014 Extension Order were the
encompass security-based swaps.4 In swaps’ following the Effective Date [of compliance dates for the specific
general, the Exchange Act Exemptive the Dodd-Frank Act], but deferring the rulemakings to which they were
Order granted temporary exemptive applicability of additional Exchange Act ‘‘linked,’’ and the expiration date for the
relief from compliance with certain requirements in connection with those Unlinked Temporary Exemptions was
provisions of the Exchange Act in instruments explicitly being defined as three years following the effective date
connection with security-based swap ‘securities’ as of the Effective Date.’’ 7 of the 2014 Extension Order (i.e.,
activity by: (i) Any person who meets February 5, 2017), or such time that the
the definition of ‘‘eligible contract 5 See Exchange Act Exemptive Order, 76 FR at
Commission issues an order or rule
participant’’ (‘‘ECPs’’) set forth in 39938–39. The Exchange Act Exemptive Order did determining whether continuing
not provide exemptive relief for any provisions or
Section 1a(12) of the Commodity rules prohibiting fraud, manipulation, or insider exemptive relief is appropriate for
Exchange Act as of July 20, 2010 (i.e., trading (other than the prophylactic reporting or security-based swaps with respect to
recordkeeping requirements such as the any such Unlinked Temporary
3 See Section 761(a)(2) of the Dodd-Frank Act confirmation requirements of Exchange Act Rule Exemptions. This approach was
(amending Section 3(a)(10) of the Exchange Act (15 10b–10). In addition, the Exchange Act Exemptive
Order did not affect the Commission’s investigative, designed to provide the Commission
U.S.C. 78c(a)(10)). The provisions of Title VII
generally became effective on July 16, 2011 (360 enforcement, and procedural authority related to with flexibility while its Dodd-Frank
days after the enactment of the Dodd-Frank Act) those provisions and rules. See Exchange Act Act rulemaking is still in progress to
(the ‘‘Effective Date’’), unless a provision required Exemptive Order at 39931, note 34. The Exchange determine whether continuing relief
a rulemaking, in which case the provision would Act Exemptive Order also did not address Sections
12, 13, 14, 15(d), 16, and 17A of the Exchange Act should be provided for any of the
go into effect ‘‘not less than’’ 60 days after
publication of the related final rules in the Federal and the rules thereunder. The Commission did, Unlinked Temporary Exemptions.9
Register or on July 16, 2011, whichever is later. See however, issue limited temporary relief from the
Section 774 of the Dodd-Frank Act (15 U.S.C. 77b). clearing agency registration requirements under Exchange Act Section 10(b)). Under the Exchange
4 At the time it issued the Exchange Act Section 17A(b) for entities providing certain Act Exemption Order, instruments that (before the
Exemptive Order, the Commission also adopted clearing services for security-based swaps. This Effective Date) were security-based swap
interim final Rule 240 under the Securities Act of relief was linked to final rules issued by the agreements and (after the Effective Date) constituted
1933 (‘‘Securities Act’’), interim final Rules 12a–11 Commission relating to the registration of clearing security-based swaps were still subject to the
and 12h–1(i) under the Exchange Act, and interim agencies that clear security-based swaps. See Order application of those Exchange Act provisions. See
final Rule 4d–12 under the Trust Indenture Act Pursuant to Section 36 of the Securities Exchange Exchange Act Exemptive Order, 76 FR at 39930, nn.
(‘‘Trust Indenture Act’’). See 17 CFR 230.240, 17 Act of 1934 Granting Temporary Exemptions from 24–25.
CFR 240.12a–11, 17 CFR 240.12h–1, and 17 CFR Clearing Agency Registration Requirements under 8 See Order Extending Temporary Exemptions
260.4d–12. See also Exemptions for Security-Based Section 17A(b) of the Exchange Act for Entities
under the Securities Exchange Act of 1934 in
Swaps, Securities Act Release No. 9231 (July 1, Providing Certain Clearing Services for Security-
Connection with the Revision of the Definition of
2011), 76 FR 40605 (July 11, 2011). This extension Based Swaps, Exchange Act Release No. 64796 (July
‘‘Security’’ to Encompass Security-Based Swaps,
order does not address these interim final rules, 1, 2011), 76 FR 39963 (July 7, 2011).
and Request for Comment, Exchange Act Release
which are scheduled to expire on February 11, The Commission also provided a temporary No. 71485 (Feb. 5, 2014), 79 FR 7731 (Feb. 10, 2014)
2018. See Exemptions for Security-Based Swaps, exemption within the Exchange Act Exemptive (‘‘2014 Extension Order’’) (extending the expiration
Securities Act Release No. 10305 (Feb. 10, 2017), 82 Order for Sections 5 and 6 of the Exchange Act and date for certain Temporary Exemptions to February
FR 10703 (Feb. 15, 2017). The Commission recently linked the expiration date of that exemptive relief 5, 2017). See also Further Definition of ‘‘Swap,’’
adopted a rule under the Securities Act to provide until the earliest compliance date set forth in any ‘‘Security-Based Swap,’’ and ‘‘Security-Based Swap
that certain communications involving security- of the final rules regarding registration of security- Agreement’’; Mixed Swaps; Security-Based Swap
based swaps will not be deemed to constitute based swap execution facilities. See Exchange Act Agreement Recordkeeping, Exchange Act Release
‘‘offers’’ of such security-based swaps for purposes Exemptive Order, 76 FR at 39934–36. No. 67453 (July 18, 2012), 77 FR 48207 (Aug. 13,
of Section 5 of the Securities Act. See Treatment of The Exchange Act Exemptive Order further 2012) (‘‘Product Definitions Adopting Release’’)
Certain Communications Involving Security-Based provided that no security-based swap contract (extending the expiration date of the Temporary
Swaps That May Be Purchased Only By Eligible entered into on or after July 16, 2011 shall be void Exemptions to February 11, 2013); Order Extending
Contract Participants, Securities Act Release No. or considered voidable by reason of Section 29(b) Temporary Exemptions under the Securities
10450 (Jan. 5, 2018), 83 FR 2046 (Jan. 16, 2018). of the Exchange Act because any person that is a Exchange Act of 1934 in Connection with the
The Commission also, on June 15, 2011, issued party to the contract violated a provision of the Revision of the Definition of ‘‘Security’’ to
an exemptive order granting temporary relief from Exchange Act for which the Commission has Encompass Security-Based Swaps, and Request for
compliance with certain provisions added to the provided exemptive relief in the Exchange Act Comment, Exchange Act Release No. 68864 (Feb. 7,
Exchange Act by subtitle B of Title VII of the Dodd- Exemptive Order, until such time as the underlying 2013), 78 FR 10218 (Feb. 13, 2013) (extending the
Frank Act with which compliance would have exemptive relief expires. By extending the expiration date to February 11, 2014).
otherwise been required as of the Effective Date. In underlying exemptive relief until February 5, 2019, 9 See 2014 Extension Order, 79 FR at 7731. The
that order, the Commission provided guidance this order will also extend the relevant Section 2014 Extension Order also linked the expiration
daltland on DSKBBV9HB2PROD with NOTICES
regarding the provisions of the Exchange Act that 29(b) relief until that same date. See Exchange Act date of the Linked Temporary Exemptions to the
were added by Title VII with which compliance Exemptive Order, 76 FR at 39938–39. compliance date for such rulemakings. The 2014
6 See Exchange Act Exemptive Order, 76 FR at
was required as of the Effective Date. See Extension Order identified the Linked Temporary
Temporary Exemptions and Other Temporary 39929. Exemptions as those related to: (1) Capital and
Relief, Together with Information on Compliance 7 Id. These instruments generally constituted margin requirements applicable to a broker or
Dates for New Provisions of the Securities Exchange ‘‘security-based swap agreements’’ under the pre- dealer (Sections 7 and 15(c)(3), Regulation T, and
Act of 1934 Applicable to Securities-Based Swaps, Dodd-Frank Act framework and were already Exchange Act Rules 15c3–1, 15c3–3, and 15c3–4);
Exchange Act Release No. 64678 (June 15, 2011), 76 subject to specific antifraud and anti-manipulation (2) recordkeeping requirements applicable to a
FR 36287 (June 22, 2011). provisions under the Exchange Act (including broker or dealer (Sections 17(a) and 17(b) and
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![5668 Federal Register / Vol. 83, No. 27 / Thursday, February 8, 2018 / Notices
Commission recognizes that the submit only information that you wish II. Self-Regulatory Organization’s
security-based swap market and to make available publicly. Statement of the Purpose of, and
corresponding regulatory regime have Statutory Basis for, the Proposed Rule
developed in the period of time since IV. Conclusion Change
the Commission originally issued the It is hereby ordered, pursuant to In its filing with the Commission, the
Exchange Act Exemptive Order, and Section 36 of the Exchange Act, that the Exchange included statements
will continue to do so. As such, to Unlinked Temporary Exemptions concerning the purpose of and basis for
determine whether permanent the proposed rule change and discussed
contained in the Exchange Act
exemptive relief is necessary or any comments it received on the
Exemptive Order and extended in the
appropriate in the public interest, and proposed rule change. The text of these
2017 Extension Order in connection
consistent with the protection of statements may be examined at the
investors, the Commission invites with the revisions of the Exchange Act
definition of ‘‘security’’ to encompass places specified in Item IV below. The
comments on the relief and requests that Exchange has prepared summaries, set
interested parties provide detailed and security-based swaps are extended until
forth in sections A, B, and C below, of
updated information relating to the February 5, 2019.
the most significant aspects of such
Unlinked Temporary Exemptions. By the Commission. statements.
To the extent that interested parties Brent J. Fields,
request specific relief for any of the A. Self-Regulatory Organization’s
Secretary. Statement of the Purpose of, and
Unlinked Temporary Exemptions
beyond February 5, 2019, the
[FR Doc. 2018–02498 Filed 2–7–18; 8:45 am] Statutory Basis for, the Proposed Rule
Commission encourages any such BILLING CODE 8011–01–P Change
interested parties to be detailed in any 1. Purpose
request as to the circumstances in which The Exchange is proposing to make
the Exchange Act provision or rule SECURITIES AND EXCHANGE
COMMISSION certain revisions to Rules 24A.4.02,
applies to security-based swaps or which contains certain requirements for
security-based swap market a FLEX Option that has the exact same
participants, and why relief would be [Release No. 34–82622; File No. SR–CBOE–
terms as a Non-FLEX Option.
necessary. 2018–008]
FLEX Options with quarterly
Comments may be submitted by any expirations, short term expirations,
of the following methods: Self-Regulatory Organizations; Cboe
weekly expirations,3 and End of Month
Exchange, Inc.; Notice of Filing of a
Electronic Comments (‘‘EOM’’) expirations are not currently
Proposed Rule Change Relating to fungible with Non-FLEX Options with
• Use the Commission’s internet Flexibly Structured Options identical terms. Such expirations were
comment form (http://www.sec.gov/ not originally intended to be fungible.4
February 2, 2018.
rules/exorders.shtml); or
• Send an email to rule-comments@ Pursuant to Section 19(b)(1) of the 3 The Exchange notes that Rule 24.9(e) no longer
sec.gov. Please include File Number S7– Securities Exchange Act of 1934 uses the term End of Week (EOW) expirations. The
27–11 on the subject line; or (‘‘Act’’),1 and Rule 19b–4 thereunder,2 Exchange added Monday and Wednesday
expirations to Rule 24.9(e), and Monday,
• Use the Federal eRulemaking Portal notice is hereby given that on January Wednesday, and Friday expirations are termed
(http://www.regulations.gov). Follow the 19, 2018, Cboe Exchange, Inc. weekly expirations in Rule 24.9(e). See Rule 24.9(e).
instructions for submitting comments. (‘‘Exchange’’ or ‘‘Cboe Options’’) filed 4 See e.g., Securities Exchange Act Release Nos.
59060 (December 5, 2008), 73 FR 76075 (December
Paper Comments with the Securities and Exchange 15, 2008)(SR–CBOE–2008–115 proposal notice);
Commission (‘‘Commission’’) the 59417 (February 18, 2009), 74 FR 8591 (February
• Send paper comments in triplicate proposed rule change as described in 25, 2009) (SR–CBOE–2008–115 approval order);
to Secretary, Securities and Exchange Items I, II, and III below, which Items and Securities Exchange Act Release 59675 (April
Commission, 100 F St. NE, Washington, 1, 2009), 74 FR 15794 (April 7, 2009) (SR–OCC–
have been prepared by the Exchange. 2009–05). FLEX Options with non-Expiration
DC 20549–1090.
The Commission is publishing this Friday expiration dates that coincide with other
All submissions should refer to File notice to solicit comments on the Non-FLEX option expiration dates and with terms
Number S7–27–11. This file number identical to those Non-FLEX Options were
proposed rule change from interested permitted before, and were not originally intended
should be included on the subject line persons. by the Exchange to become subject to, the
if email is used. To help us process and fungibility provisions adopted through SR–CBOE–
review your comments more efficiently, I. Self-Regulatory Organization’s 2008–115 (e.g., a FLEX Option that expires on the
please use only one method. The Statement of the Terms of Substance of last day of a quarter and that has terms identical
to a Non-FLEX Option series is not fungible with
Commission will post all comments on the Proposed Rule Change that Non-FLEX Option series; however, certain
the Commission’s internet website position limit aggregation requirements apply under
(http://www.sec.gov/rules/ The Exchange seeks to amend its rules Rules 24A.7(d)(1)–(2) and 24B.7(d)(1)–(2)). See also,
exorders.shtml). Comments are also related to flexibly structured options e.g., Securities Exchange Release Act Nos. 62658
(‘‘FLEX Options’’). The text of the (August 5, 2010), 75 FR 49010 (August 12,
available for website viewing and 2010)(SR–CBOE–2009–075 proposal notice) and
printing in the Commission’s Public proposed rule change is available on the 62911 (September 14, 2010), 75 FR 57539
Reference Room, 100 F St. NE, Exchange’s website (http:// (September 21, 2010) (SR–CBOE–2009–075
Washington, DC 20549 on official www.cboe.com/AboutCBOE/ approval order)(footnote 8 of the proposal notice
daltland on DSKBBV9HB2PROD with NOTICES
CBOELegalRegulatoryHome.aspx), at indicates that FLEX Options do not become
business days between the hours of 10 fungible with subsequently introduced Non-FLEX
a.m. and 3 p.m. All comments received the Exchange’s Office of the Secretary, structured quarterly and short term options and
will be posted without change. Persons and at the Commission’s Public that, because of the similarities between EOW and
submitting comments are cautioned that Reference Room. EOM expirations and existing Non-FLEX structured
quarterly and short term options, FLEX Options
the Commission does not redact or edit will similarly not become fungible with EOW and
personal identifying information from 1 15 U.S.C. 78s(b)(1). EOM expirations listed for trading). As previously
comment submissions. You should 2 17 CFR 240.19b–4. noted, Rule 24.9(e) was amended to include
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Document Created: 2018-02-08 00:16:20
Document Modified: 2018-02-08 00:16:20
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| Section | Notices | |
| FR Citation | 83 FR 5665 |
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