United States: SEC Extends Relief, Requests Comment On Security-Based Swap Exemptions

The SEC extended temporary relief exempting security-based swap activity from various provisions of the federal securities laws until February 5, 2019, and requested comment as to whether such relief should be extended beyond that date.

The exemptions were originally issued in connection with the expansion of the Exchange Act definition of "security" to include security-based swaps. To maintain the "status quo" and give proper attention to the complex issues that may arise from the expanded definition, the SEC chose to defer applicability of additional requirements that would have been imposed upon eligible contract participants and certain broker-dealers in connection with security-based swaps. While some aspects of the temporary exemptions were linked to specific rulemaking (and assigned an expiration date in accordance with such rulemaking), others were not directly related to a specific rulemaking. The SEC assigned an expiration date to these exemptions based on the date of the most recent extension order, which was set to expire on February 5, 2018.

Commentary / Nihal Patel

The brinksmanship practiced by the SEC on these exemptions was not good policy. The exemptions largely speak to provisions of law that would have gone into effect following the adoption of Dodd-Frank almost eight years ago. It should not have been the case that the regulators waited until one business day before the exemptions were to expire to extend them. This is particularly the case given that (i) it is not in the control of the industry to adopt rules to implement the relevant statutes, and (ii) it was totally unclear how the statutes would have been interpreted in the absence of implementing rules. Given how much remains to be done, it is unlikely that the security-based swap rules will be ready in a year. The regulators should be poised to extend the next "deadline" well before the drop dead date.

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