The SEC staff has made available an analysis of market data related to credit default swap transactions. The analysis, which was conducted by the staff of the SEC’s Division of Risk, Strategy, and Financial Innovation, is available for review and comment as part of the comment file for rules the SEC proposed, jointly with the CFTC, to further define the terms “swap dealer,” “security-based swap dealer,” “major swap participant,” “major security-based swap participant,” and “eligible contract participant.” The SEC and CFTC jointly proposed those rules in December 2010 as one part of the implementation of Title VII of the Dodd-Frank Act.
The SEC staff believes that the analysis of market data has the potential to be informative for evaluating certain final rules under Title VII, including rules that further define “major security-based swap participant” and “security-based swap dealer,” and rules implementing the statutory de minimis exception to the latter definition. Analyses of this type particularly may supplement other information considered in connection with those final rules, and the SEC staff is making this analysis available to allow the public to consider this supplemental information. The SEC staff expects that the Commission will consider the adoption of rules defining these terms in the next several weeks.
The staff believes the following attributes may be relevant when determining whether an entity is a dealer:
- Whether an entity transacts with multiple counterparties.
- Whether an entity transacts with multiple counterparties, excepting those entities recognized by ISDA as dealers.
- Whether an entity’s aggregate buy notional amount is within 45-55% of its aggregate gross notional transactions.
- Whether an entity’s aggregate number of buy orders are within 45-55% of its aggregate number of transactions.
- Whether an entity’s frequency of posting initial margin on orders occurs in less than 10% of their aggregate transactions.
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