The SEC provided guidance as to which requirements of Dodd-Frank will apply to security-based swap transactions as of 7/16/11, the effective date of Title VII.  It also granted temporary relief to market participants from compliance with certain of these requirements.

Title VII is the portion of Dodd-Frank that ... establishes a comprehensive framework for regulating OTC derivatives.  In particular, it authorizes the Commission to regulate “security-based swaps” while also authorizing the CFTC to regulate other swaps. The portion of Title VII referred to as Subtitle B, which addresses the new regulatory regime for security-based swaps, generally will take effect on July 16 (360 days after the date of the Dodd-Frank Act’s enactment).

SEC Gameplan.   “This is the first step in a series of actions the SEC intends to take in coming days to address effective date issues,” said Robert Cook, Director of the SEC’s Division of Trading and Markets. “Temporarily and to the extent appropriate, our goal is to preserve the pre-Dodd-Frank Act legal framework until we complete the rulemaking tasks and develop a workable implementation plan.”

Accordingly, it should be noted that substantially all of Title VII’s requirements applicable to security-based swaps will not go into effect on July 16.  As a result, the SEC's action also grants temporary relief from compliance with most of the new Exchange Act requirements that would otherwise apply on July 16.

To enhance the legal certainty provided to market participants, the Commission’s action provides temporary relief from Section 29(b), which generally provides that contracts made in violation of any provision of the Exchange Act shall be void as to the rights of any person who is in violation of the provision.  The antifraud and anti-manipulation prohibitions of the federal securities laws will continue to apply to security-based swaps after July 16.

After proposing all key rules under Title VII, the SEC intends to consider seeking public comment on a detailed implementation plan that will permit a rollout of the new securities-based swap requirements in an efficient manner while minimizing unnecessary disruption and costs to the markets. 

The SEC continues to seek public comment on today’s actions - to be received on or before 7/6/11. 

For additional information, go to:   [SEC PR 11-130, 6/15/11]