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May 13, 2015

Stroock Special Bulletin

On April 29, 2015, the Securities and Exchange Commission (“SEC”) released proposed amendments and a re-proposed rule governing the regulatory treatment of certain security-based swap transactions between two non-U.S. persons.  In crafting this proposal, the SEC considered comments to an earlier SEC proposal, as well as the comments received in response to a controversial Commodity Futures Trading Commission Staff Advisory that is currently subject to no-action relief.
Under the SEC’s proposal:

  • A non-U.S. person would be required to include, in its calculations of whether it qualifies for the de minimis exception from designation as a security-based swap dealer (“SBSD”), security-based swap transactions connected with its security-based swap dealing activity that are arranged, negotiated or executed by personnel of such non-U.S. person located in a U.S branch or office, or by personnel of an agent of such non-U.S. person located in a U.S. branch or office.
  • A non-U.S. person who is a registered U.S. SBSD would be subject to the external business conduct requirements of section 15F(h) of the Securities Exchange Act of 1934 with respect to any transaction arranged, negotiated or executed by personnel of the non-U.S. SBSD located in a U.S. branch or office, or by personnel of an agent of the non-U.S. SBSD located in a U.S. branch or office.
  • Any security-based swap transaction connected with a non-U.S. person’s security-based swap dealing activity that is arranged, negotiated or executed by personnel of the non-U.S. person located in a U.S branch or office, or by personnel of an agent of such non-U.S person located in a U.S. branch or office, would be subject to the regulatory reporting and public dissemination requirements set forth in Regulation SBSR.

This Stroock Special Bulletin describes the SEC’s proposed test for whether a security-based swap transaction would be considered to be arranged, negotiated or executed by personnel of a non-U.S. person located in a U.S branch or office, or by personnel of an agent of such non-U.S. person located in a U.S. branch or office.