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The SEC has proposed rules required under the Dodd-Frank Act that would set out the way in which clearing agencies provide information to the SEC about security-based swaps that the clearing agencies plan to accept for clearing. This information is designed to aid the SEC in determining whether such security-based swaps are, in fact, required to be cleared.  The SEC also proposed rules that would set out the way in which those clearing agencies that are designated as “systemically important” must submit advance notices for changes to their rules, procedures, or operations that could materially affect the nature or level of risk presented at such clearing agencies.

Proposed Rule Regarding Submissions About Security-Based Swaps to Be Cleared

 Under the proposed rule, a clearing agency would be required to file information with the SEC regarding any security-based swap, or any group, category — type or class of security-based swaps — that a clearing agency plans to accept for clearing. These security-based swap submissions” would be filed electronically with the SEC using the existing Electronic Form 19b-4 Filing System and Form 19b-4.

 The proposed rule, which would amend Rules 19b-4 and Form 19b-4 under the Exchange Act, would also describe the information that each submission must contain so that the SEC would be able to determine whether the security-based swap submission should be subject to mandatory clearing. This information includes quantitative and qualitative information to assist the SEC in the assessment of the factors set forth under Dodd-Frank Act which the SEC is required to take into account in its review of the mandatory clearing requirement.

 The proposed rule also would specify how the clearing agency must notify its members about the submissions it makes. And, the rule would require clearing agencies to post copies of their submissions on their public websites within two business days.

 Proposed Rule Regarding Advance Notice by “Systemically Important” Clearing Agencies

 As with the proposed rule regarding security-based swap submissions, the SEC is proposing rules that would require a designated “systemically important” clearing agency to provide advance notice to the SEC before it makes certain changes to its rules or procedures. That notice would need to be filed electronically with the SEC using the existing Electronic Form 19b-4 Filing System and Form 19b-4.

 The proposed rule also would generally require advance notice when:

  • The proposed change would affect the risk management functions performed by the clearing agency that are related to systemic risk.
  • The proposed change could affect the clearing agency’s ability to continue to perform its core clearance and settlement functions.

 Changes that could require advance notice may include, but are not limited to, changes that materially affect participant and product eligibility, risk management, daily or intraday settlement procedures, default procedures, system safeguards, governance or financial resources of the designated clearing agency.

 Check frequently for updates on the Dodd-Frank Act and other important securities law matters.