SEC Proposes Recordkeeping, Reporting, and Notification Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants

by Goodwin

The SEC issued a release proposing recordkeeping, reporting, and notification requirements for security-based swap dealers (“SBSDs”) and major security-based swap participants (“MSBSPs”).  Although described as seeking to establish consistent requirements to avoid “potential competitive disparities” between different categories of SBSDs, the proposals, which are modeled on rules applicable to broker-dealers, generally apply somewhat differently to the following three categories of SBSDs and MSBSPs:  (1) “broker-dealer SBSDs” or “broker-dealer MSBSPs,” which are registered broker-dealers that also act as SBSDs or MSBSPs; (2) “bank SBSDs” or “bank MSBSPs,” which are regulated by a prudential regulator; and (3) “stand-alone SBSDs” or “stand-alone MSBSPs,” which are neither broker-dealers nor regulated by a prudential regulator.

The proposals would generally govern broker-dealer SBSDs and broker-dealer MSBSPs by amending existing regulations applicable to broker-dealers to address issues relating to security-based swaps.  New rules have been proposed for stand-alone SBSDs and stand-alone MSBSPs, which are generally based on, but narrower in scope than, those applicable to their broker-dealer counterparts in an effort to reflect the fact that the stand-alone entities will engage in a narrower range of activities than broker-dealers.  The rules governing bank SBSDs and bank MSBSPs would be narrowest in scope, in acknowledgement of the fact that banking entities are subject to existing recordkeeping and reporting requirements imposed by the prudential regulators and because those regulators, rather than the SEC, would administer some of the requirements that the proposed SEC rules applicable to broker-dealer and stand-alone entities are designed to advance.  Some of the proposed rules applicable to bank SBSDs and bank MSBSPs are designed to conform to existing banking regulations.  The proposing release solicits comment on “whether alternative approaches would be appropriate” for each of the various types of SBSDs and MSBSPs.

The proposals would amend Rule 17a-3 under the Securities Exchange Act of 1934 (the “Exchange Act”), which imposes record-keeping requirements on broker-dealers, to apply to broker-dealer SBSDs and broker-dealer MSBSPs and to make certain technical amendments.  Proposed new Rule 18a-5 under the Exchange Act, which is modeled on Rule 17a-3, would impose record-keeping requirements on stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs.  The records required to be maintained would include daily trading records (“trade blotters”), ledger accounts, a securities record, memoranda of brokerage orders, and memoranda of proprietary trades with respect to security-based swaps activity.  The proposals would also amend Rule 17a-4 under the Exchange Act, which applies to broker-dealers, to specify requirements for how long the records must be preserved and the manner in which they must be preserved; proposed new Rule 18a-6 would impose similar requirements on stand-alone and bank SBSDs and MSBSPs.  Generally, records would be required to be preserved for either three years or six years, depending on the specific type of record, and must be stored in an easily accessible place for at least the first two years.

Exchange Act Rule 17a-5, which codifies a reporting program for broker-dealers, would be amended under the proposals to apply to the security-based swap activities of broker-dealer SBSDs and broker-dealer MSBSPs.  Proposed new Exchange Act Rule 18a-7, which is modeled on Rule 17a-5 as proposed to be amended, would apply to stand-alone SBSDs, stand-alone MSBSPs, bank SBSDs, and bank MSBSPs.  All SBSDs and MSBSPs would report on proposed Form SBS, a new form modeled on the Financial and Operational Combined Uniform Single Report, or “FOCUS Report.”  In the case of broker-dealer SBSDs and broker-dealer MSBSPs, reporting on the Form SBS would replace their use of certain parts of the FOCUS Report.  Broker-dealer SBSDs, broker-dealer MSBSPs, stand-alone SBSDs, and stand-alone MSBSPs would be required to file proposed Form SBS on a monthly basis, while banking SBSDs and banking MSBSPs would be required to do so on a quarterly basis to conform with the existing requirement that banking entities file call reports on a quarterly basis.

The proposals also include a “notification program” in which SBSDs and MSBSPs would be required to notify the SEC upon the occurrence of certain events pertaining to their financial or operational condition, such as a failure to meet minimum capital requirements, early warnings of potential capital problems, failure to make and keep current books and records, and insufficient liquidity reserves.  Rule 17a-11 under the Exchange Act, an existing notification rule applicable to broker-dealers, would be amended to account for a broker-dealer that is also an SBSD or MSBSP.  A new rule, proposed Rule 18a-8 under the Exchange Act, would be based on Rule 17a-11 and would apply to stand-alone SBSDs, stand-alone MSBSPs, banking SBSDs, and banking MSBSPs.

Comments on the proposal are due on July 1, 2014.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Goodwin | Attorney Advertising

Written by:


Goodwin on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.