Section 766 of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires the SEC to adopt an interim final rule for the reporting of security-based swaps entered into before July 21, 2010, the terms of which had not expired as of that date (“pre-enactment security-based swap transactions”), within 90 days of the enactment of the Dodd-Frank Act. Pursuant to this requirement, the SEC adopted an interim final temporary rule (Release No. 34-63094) that requires specified counterparties to pre-enactment security-based swap transactions to report certain information relating to pre-enactment security-based swaps to a registered security-based swap data repository or to the SEC by the compliance date established in the security-based swap reporting rules required under Sections 3C(e) and 13A(a) of the Securities Exchange Act of 1934 (“Exchange Act”), or within 60 days after a registered security-based swap data repository commences operations to receive and maintain data concerning such security-based swaps, whichever occurs first and report information relating to pre-enactment security-based swaps to the SEC upon request.
Definitions
New Section 3(a)(68) of the Exchange Act, which was added by Section 761 of the Dodd-Frank Act, defines a security-based swap to include a swap, as defined in Section 1a of the Commodity Exchange Act, that is based on a narrow-based security index, or a single security or loan, or any interest therein or on the value thereof, or the occurrence or non-occurrence of an event relating to an issuer of a security or the issuers of securities in a narrow-based index, provided that such event directly affects the financial statements, financial condition, or financial obligations of the issuer. Section 761 of the Dodd-Frank Act also adds new definitions in Section 3(a) of the Exchange Act for entities involved in the security-based swaps markets, including, among others, security-based swap dealer, major security-based swap participant, security-based swap data repository, and security-based swap execution facility.
Reporting Obligations in General
The SEC adopted Rule 13Aa-2T under the Exchange Act to specify the reporting requirements applicable to pre-enactment security-based swaps. Rule 13Aa-2T requires specified counterparties to a pre-enactment security-based swap transaction to: (1) report certain information relating to pre-enactment security-based swaps to a registered security-based swap data repository or to the SEC by the compliance date established in the security-based swap reporting rules required by Section 3C(e) and 13A(a)(1) of the Exchange Act, or within 60 days after a registered security-based swap data repository commences operations to receive and maintain data concerning such security-based swaps, whichever occurs first; and (2) report information relating to pre-enactment security-based swaps to the SEC upon request during an interim period.
Party Responsible for Reporting
Section 13A(a)(3) to the Exchange Act specifies the party obligated to report a security-based swap – either a security-based swap dealer, a major security-based swap participant, or a counterparty to the swap. These provisions apply for purposes of reporting pursuant to the interim final temporary rule. Specifically, Section 13A(a)(3) of the Exchange Act provides that with respect to a security-based swap in which only one counterparty is a security-based swap dealer or major security-based swap participant, the security-based swap dealer or major security-based swap participant shall report the security-based swap; with respect to a security-based swap in which one counterparty is a security-based swap dealer and the other counterparty is a major security-based swap participant, the security-based swap dealer shall report the security-based swap; and with respect to any other security-based swap, the counterparties to the security-based swap shall select a counterparty to report the security-based swap.
Record Retention Requirements
Pre-enactment security-based swaps that must be reported pursuant to Section 13A(a)(2) of the Exchange Act and new interim final temporary Rule 13Aa-2T thereunder have already occurred prior to enactment of the Dodd-Frank Act. Thus, to support the reporting requirements in Rule 13Aa-2T(b), a Note to paragraphs (b)(1) and (2) of Rule 13Aa-2T requires each counterparty to a pre-enactment security-based swap transaction that may be required to report such transaction to retain information and documents relating to the terms of the transaction. Specifically, the Note requires a counterparty to a pre-enactment security-based swap transaction that may be required to report such transaction to retain in its existing format all information and documents, if available, to the extent and in such form as they currently exist, relating to the terms of the security-based swap transaction, including but not limited to: any information necessary to identify and value the transaction; the date and time of execution of the transaction; all information from which the price of the transaction was derived; whether the transaction was accepted for clearing by any clearing agency or derivatives clearing organization, and, if so, the identity of such clearing agency or derivatives clearing organization; any modification(s) to the terms of the transaction; and the final confirmation of the transaction.
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