Nearly four years after the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), on June 25, 2014, the Securities and Exchange Commission (“SEC”) adopted its first in a series of final rules aimed at cross-border security-based swap activities. The final rules stem from an SEC proposal issued May 23, 2013, but do not address all of the issues raised in that proposal. Instead, the final rules address certain aspects of the 2013 proposal, principally the applicability of the security-based swap dealer (“SBSD”) and major security-based swap participant (“MSBSP”) definitions to cross-border security-based swap activities. Final rules addressing the other cross-border issues addressed in the May 23, 2013 proposal will be made in subsequent, separate rulemakings.

Overview -

The final rules adopted by the SEC in its June 25 adopting release address such issues as when a cross-border security-based swap transaction (e.g., a security-based swap between a U.S. and non-U.S. person counterparty) must be counted in order to determine whether a person has to register as an SBSD or MSBSP. For these purposes, a definition of U.S. person is provided. The rule also adopts a procedural rule for the submission of substituted compliance requests to the SEC, although the substantive nature of such determinations will be made in subsequent rulemakings. Substituted compliance would permit parties that are in compliance with another jurisdiction’s comparable regulatory framework (as determined by the SEC) to which a transaction is also subject to be considered in compliance with SEC regulations. In addition, the final rules address the scope of the SEC’s antifraud authority in the cross-border context.