SEC Proposes Broad Rules for Reporting Securities Swaps, Re-proposes Anti-Fraud Rules | Proskauer Rose LLP

On December 15, 2021, the Securities and Exchange Commission proposed new rules requiring that large positions in securities swaps and related securities be reported to the commission and publicly disclosed. At the same time, the Securities and Exchange Commission proposed new rules prohibiting staff of securities swap traders from taking action to influence the head of compliance of the securities swap trader in the performance of their duties. The Securities and Exchange Commission also proposed new regulations prohibiting fraudulent, deceptive and manipulative conduct in connection with securities swaps.

The Securities and Exchange Commission (the “SEC”) has proposed a new rule 10B-1 requiring the reporting of large securities swap positions on the electronic data collection, analysis and retrieval (“EDGAR”) system of the SEC. The rule aims to increase the transparency of securities swap positions. In the publication proposal, the SEC expressed concern about fabricated credit events triggering credit default swaps and the risks of concentrated positions that are not known to the market or regulators. The SEC has said that reporting such large securities swap positions will alert market participants to possible financial incentives that a market participant may have to act contrary to the interests of the issuer and its stakeholders. The SEC believes that such transparency would be beneficial to the market even if there is no fraud, manipulation or deceptive conduct on the part of the owner of the large securities-based swap position. The SEC also believes that such public reports could help inform prices and improve risk management for brokers when a market player has acquired a significant position among a number of brokers by alerting the broker to significant exposure to the market. ‘regard to the same exchange.

Rule 10B-1 would require any person, subsidiary of such a person or group of persons who would directly or indirectly own or sell a securities-based swap to report that securities-based swap position on EDGAR, under reserve of certain thresholds. Thresholds vary depending on the type of swap and, in some circumstances, will include the value of any underlying security held by the holder of the reportable swap position to determine whether the threshold has been met. Information on securities swap positions must be filed on EDGAR within one business day of the execution of the relevant position and will be publicly disclosed.

The SEC initially proposed anti-fraud, deception and manipulation rules with respect to securities swaps in 2010. The rule explicitly addressed misconduct related to the bidding, buying and selling of securities swaps and also applied to the flow of securities. treasury, payments, deliveries. and other outstanding rights and obligations specific to securities swaps. The proposed new rule prohibits fraudulent, deceptive and manipulative conduct in connection with securities swaps and also includes anti-manipulation rules similar to those promulgated by the Commodity Futures Trading Commission. The rule prohibits persons in possession of material non-public information (“MNPI”) from using swaps to gain exposure to securities and to avoid liability that would otherwise result from the direct purchase of the relevant securities while they were. in possession of MNPI. In addition, the rule prohibits any officer, director, supervisee or employee of a securities swap trader or a major participant in securities swaps from coercing, manipulating, misleading or fraudulently influencing the compliance officer. of the entity in performing their obligations under securities laws.

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