Exemptions for Security-Based Swaps, 10703-10707 [2017-03121]
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Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Rules and Regulations
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[FR Doc. 2017–02921 Filed 2–14–17; 8:45 am]
BILLING CODE 4910–13–P
SECURITIES AND EXCHANGE
COMMISSION
17 CFR Parts 230, 240, and 260
[Release Nos. 33–10305; 34–80023; 39–
2515; File No. S7–26–11]
RIN 3235–AL17
Exemptions for Security-Based Swaps
Securities and Exchange
Commission.
ACTION: Interim final rule.
AGENCY:
We are adopting amendments
to the expiration dates in our interim
final rules that provide exemptions
under the Securities Act of 1933, the
Securities Exchange Act of 1934, and
the Trust Indenture Act of 1939 for
those security-based swaps that prior to
July 16, 2011 were security-based swap
agreements and are defined as
‘‘securities’’ under the Securities Act
and the Exchange Act as of July 16, 2011
due solely to the provisions of Title VII
of the Dodd-Frank Wall Street Reform
and Consumer Protection Act. Under
the amendments, the expiration dates in
the interim final rules will be February
11, 2018.
DATES: The amendments are effective
February 15, 2017. See Section I of the
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SUMMARY:
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SUPPLEMENTARY INFORMATION concerning
amendment of expiration dates in the
interim final rules.
FOR FURTHER INFORMATION CONTACT:
Andrew Schoeffler, Special Counsel,
Office of Capital Markets Trends,
Division of Corporation Finance, at
(202) 551–3860, U.S. Securities and
Exchange Commission, 100 F Street NE.,
Washington, DC 20549–3628.
SUPPLEMENTARY INFORMATION: We are
adopting amendments to the following
rules: Interim final Rule 240 under the
Securities Act of 1933 (‘‘Securities
Act’’),1 interim final Rules 12a–11 and
12h–1(i) under the Securities Exchange
Act of 1934 (‘‘Exchange Act’’),2 and
interim final Rule 4d–12 under the
Trust Indenture Act of 1939 (‘‘Trust
Indenture Act’’).3
I. Amendment of Expiration Dates in
the Interim Final Rules
A. Background Regarding the Interim
Final Rules
In July 2011, we adopted interim final
Rule 240 under the Securities Act,
interim final Rules 12a–11 and 12h–1(i)
under the Exchange Act, and interim
final Rule 4d–12 under the Trust
Indenture Act (collectively, the ‘‘interim
final rules’’).4 The interim final rules
provide exemptions under the
Securities Act, the Exchange Act, and
the Trust Indenture Act for those
security-based swaps that prior to July
16, 2011 (‘‘Title VII effective date’’) were
‘‘security-based swap agreements’’ and
are defined as ‘‘securities’’ under the
Securities Act and the Exchange Act as
of the Title VII effective date due solely
to the provisions of Title VII of the
Dodd-Frank Act.5 The interim final
rules exempt offers and sales of
security-based swap agreements that
became security-based swaps on the
Title VII effective date from all
provisions of the Securities Act, other
than the Section 17(a) anti-fraud
provisions, as well as from the Exchange
Act registration requirements and from
the provisions of the Trust Indenture
1 15
U.S.C. 77a et seq.
U.S.C. 78a et seq.
3 15 U.S.C. 77aaa et seq.
4 See 17 CFR 230.240, 17 CFR 240.12a–11, 17 CFR
240.12h–1, and 17 CFR 260.4d–12. See also
Exemptions for Security-Based Swaps, Release No.
33–9231 (Jul. 1, 2011), 76 FR 40605 (Jul. 11, 2011)
(‘‘Interim Final Rules Adopting Release’’).
5 The Dodd-Frank Wall Street Reform and
Consumer Protection Act, Public Law 111–203, 124
Stat. 1376 (2010). The provisions of Title VII
generally were effective on July 16, 2011 (360 days
after enactment of the Dodd-Frank Act), unless a
provision requires a rulemaking. If a Title VII
provision requires a rulemaking, it will go into
effect ‘‘not less than’’ 60 days after publication of
the related final rule or on July 16, 2011, whichever
is later. See Section 774 of the Dodd-Frank Act.
2 15
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10703
Act,6 provided certain conditions are
met.7 We have adopted amendments to
the interim final rules to extend the
expiration dates in the interim final
rules, first from February 11, 2013 to
February 11, 2014,8 and then from
February 11, 2014 to February 11,
2017.9
Title VII amended the Securities Act
and the Exchange Act to include
‘‘security-based swaps’’ in the definition
of ‘‘security’’ for purposes of those
statutes.10 As a result, ‘‘security-based
swaps’’ became subject to the provisions
of the Securities Act and the Exchange
Act and the rules and regulations
thereunder applicable to ‘‘securities.’’ 11
6 The category of security-based swaps covered by
the interim final rules involves those that would
have been defined as ‘‘security-based swap
agreements’’ prior to the enactment of Title VII.
That definition of ‘‘security-based swap agreement’’
does not include security-based swaps that are
based on or reference only loans and indexes only
of loans. The Division of Corporation Finance
issued a no-action letter that addressed the
availability of the interim final rules to offers and
sales of security-based swaps that are based on or
reference only loans or indexes only of loans. See
Cleary Gottlieb Steen & Hamilton LLP (Jul. 15,
2011). The Cleary Gottlieb No-Action Letter will
remain in effect for so long as the interim final rules
remain in effect.
7 The security-based swap that is exempt must be
a security-based swap agreement (as defined prior
to the Title VII effective date) and entered into
between eligible contract participants (as defined
prior to the Title VII effective date). See Rule 240
under the Securities Act [17 CFR 230.240]. See also
Interim Final Rules Adopting Release.
8 See Extension of Exemptions for Security-Based
Swaps, Release No. 33–9383 (Jan. 29, 2013), 78 FR
7654 (Feb. 4, 2013).
9 See Extension of Exemptions for Security-Based
Swaps, Release No. 33–9545 (Feb. 5, 2014), 79 FR
7570 (Feb. 10, 2014) (‘‘Extension Adopting
Release’’).
10 See Sections 761(a)(2) and 768(a)(1) of the
Dodd-Frank Act (amending Section 3(a)(10) of the
Exchange Act [15 U.S.C. 78c(a)(10)] and Section
2(a)(1) of the Securities Act [15 U.S.C. 77b(a)(1)],
respectively).
11 The Securities Act requires that any offer and
sale of a security must be either registered under the
Securities Act or made pursuant to an exemption
from registration. See Section 5 of the Securities Act
[15 U.S.C. 77e]. In addition, certain provisions of
the Exchange Act relating to the registration of
classes of securities and the indenture qualification
provisions of the Trust Indenture Act of 1939
(‘‘Trust Indenture Act’’) [15 U.S.C. 77aaa et seq.]
also potentially could apply to security-based
swaps. The provisions of Section 12 of the
Exchange Act could, without an exemption, require
that security-based swaps be registered before a
transaction could be effected on a national
securities exchange. See Section 12(a) of the
Exchange Act [15 U.S.C. 78l(a)]. In addition,
registration of a class of security-based swaps under
Section 12(g) of the Exchange Act could be required
if the security-based swap is considered an equity
security and held of record by either 2000 persons
or 500 persons who are not accredited investors at
the end of a fiscal year. See Section 12(g)(1)(A) of
the Exchange Act [15 U.S.C. 78l(g)(1)(A)]. Further,
without an exemption, the Trust Indenture Act
could require qualification of an indenture for
security-based swaps considered to be debt. See 15
U.S.C. 77aaa et seq.
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The interim final rules were intended to
allow security-based swap agreements
that became security-based swaps on the
Title VII effective date to continue to
trade as they did prior to the enactment
of Title VII.12 We adopted the interim
final rules because, among other things,
we were concerned about disrupting the
operation of the security-based swaps
market while we evaluated the
implications for security-based swaps
under the Securities Act and the
Exchange Act as a result of the inclusion
of the term ‘‘security-based swap’’ in the
definition of ‘‘security’’ for purposes of
those statutes.13
At the time of adoption of the interim
final rules in July 2011, we requested
comment on various aspects of the
interim final rules.14 In response to the
request for comment, commenters
expressed concerns regarding the
availability of exemptions from the
registration requirements of the
Securities Act, including the exemption
in Section 4(a)(2), for security-based
swap transactions entered into solely
between eligible contract participants
(‘‘ECPs’’) due to the operation of certain
trading platforms and the publication or
distribution of other information
regarding security-based swaps.15
Commenters indicated that the
publication or distribution of certain
communications involving securitybased swaps on an unrestricted basis
could be viewed as offers of those
security-based swaps within the
meaning of Section 2(a)(3) of the
Securities Act,16 and such
communications would require
compliance with the registration
provisions of Section 5 of the Securities
Act unless there is an available
exemption from such registration
requirements.17 Further, such
communications may be considered
offers to persons who are not ECPs, even
if such persons are not permitted to
Interim Final Rules Adopting Release.
Prior to the Title VII effective date, securitybased swap agreements that became security-based
swaps on the Title VII effective date were outside
the scope of the federal securities laws, other than
the anti-fraud and certain other provisions. See
Section 2A of the Securities Act [15 U.S.C. 77b(b)–
1)] and Section 3A of the Exchange Act [15 U.S.C.
78c–1], each as in effect prior to the Title VII
effective date.
14 See Interim Final Rules Adopting Release. The
Commission also requested comment on certain of
these matters in an earlier proposing release
regarding exemptions for security-based swap
transactions involving an eligible clearing agency.
See Exemptions For Security-Based Swaps Issued
By Certain Clearing Agencies, Release No. 33–9222
(Jun. 9, 2011), 76 FR 34920 (Jun. 15, 2011).
15 See Extension Adopting Release.
16 See 15 U.S.C. 77b(a)(3).
17 See Extension Adopting Release.
purchase the security-based swaps.18
Under Section 5(e) of the Securities Act,
it is unlawful to make offers or sales of
security-based swaps to persons who are
not ECPs unless the security-based
swaps are registered under the
Securities Act.19 Commenters indicated
that if there is no Securities Act
exemption available with respect to a
security-based swap transaction, the
required registration of such
transactions could negatively impact the
security-based swaps market.20
As noted above, we twice have
extended the expiration dates in the
interim final rules.21 These extensions
have enabled us to continue our
evaluation of the implications for
security-based swaps as securities and
determine whether other regulatory
action is appropriate. We indicated
when we extended the expiration dates
that we were carefully considering the
comments we had received on the
interim final rules as part of our
evaluation of the implications for
security-based swaps resulting from the
inclusion of the term ‘‘security-based
swap’’ in the definition of ‘‘security’’
under the Securities Act and the
Exchange Act.22 We continue to
consider those comments as we evaluate
whether other regulatory action is
appropriate, including the proposal
discussed in the next section.
B. SBS Communications Proposal
Subsequent to the most recent
extension of the expiration dates in the
interim final rules, we proposed a rule
under the Securities Act to provide that
certain communications involving
security-based swaps that may be
purchased only by ECPs would not be
deemed for purposes of Section 5 of the
Securities Act to constitute offers of the
security-based swaps that are the subject
of such communications or any
guarantees of such security-based swaps
that are securities (‘‘SBS
Communications Proposal’’).23 The SBS
12 See
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13 Id.
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18 Id.
19 See Section 5(e) of the Securities Act [15 U.S.C.
77e(e)]) (Notwithstanding the provisions of section
3 or 4, unless a registration statement meeting the
requirements of section 10(a) is in effect as to a
security-based swap, it shall be unlawful for any
person, directly or indirectly, to make use of any
means or instruments of transportation or
communication in interstate commerce or of the
mails to offer to sell, offer to buy or purchase or sell
a security-based swap to any person who is not an
eligible contract participant).
20 See Extension Adopting Release.
21 See footnotes 8 and 9 above and accompanying
text.
22 See Extension Adopting Release.
23 See Treatment of Certain Communications
Involving Security-Based Swaps That May Be
Purchased Only By Eligible Contract Participants,
Release No. 33–9643 (Sep. 8, 2014), 79 FR 54224
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Communications Proposal would cover
the dissemination of price quotes that
relate to security-based swaps that may
be purchased only by ECPs and are
traded or processed on or through
certain trading platforms. The SBS
Communications Proposal would enable
price quotes relating to security-based
swaps to be disseminated on an
unrestricted basis without concern that
such dissemination could jeopardize the
availability of exemptions from the
registration requirements of the
Securities Act for transactions involving
the security-based swaps that are the
subject of such communications. The
Commission requested comment on all
aspects of the SBS Communications
Proposal, including whether it should
cover types of communications other
than price quotes, such as
communications characterized as
research that relate to or discuss
security-based swaps.24 The
Commission is evaluating the comments
received and has not yet taken final
action as to the SBS Communications
Proposal.
C. Extension of the Interim Final Rules
In this release, we are extending the
expiration dates in the interim final
rules from February 11, 2017 to
February 11, 2018. We believe that the
interim final rules are needed to avoid
disruption in the security-based swaps
market while we continue to consider in
a thorough and deliberative manner
whether other regulatory action is
appropriate. If the interim final rules
expire on February 11, 2017, market
participants entering into security-based
swap transactions will have to consider
whether they need to register the offer
and sale of the security-based swaps
under the Securities Act. Market
participants also will have to consider
whether they may be required to comply
with the registration provisions of the
Exchange Act applicable to classes of
securities and the indenture provisions
of the Trust Indenture Act. We believe
that requiring compliance with these
provisions while we continue to
evaluate the implications for securitybased swaps as securities and determine
whether other regulatory action,
including the SBS Communications
Proposal, is appropriate could have an
impact on the operation of the securitybased swaps market. Thus, the interim
(Sep. 11, 2014) (‘‘SBS Communications Proposing
Release’’).
24 Id. The SBS Communications Proposing
Release discussed the types of communications
covered and not covered by the proposal and
included an extensive request for comment about
communications characterized as research that
relate to security-based swaps.
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final rules are needed to allow market
participants that meet the conditions of
the interim final rules to continue to
enter into security-based swap
transactions without concern that such
activities may not comply with the
applicable provisions of the Securities
Act, the Exchange Act, and the Trust
Indenture Act.
Based on the foregoing, we believe
that it is necessary and appropriate in
the public interest and consistent with
the protection of investors to continue
providing the exemptions from all
provisions of the Securities Act (other
than the Section 17(a) antifraud
provisions), the registration
requirements of the Exchange Act
relating to classes of securities, and the
indenture provisions of the Trust
Indenture Act for those security-based
swaps that prior to the Title VII effective
date were security-based swap
agreements, provided certain conditions
are met. Accordingly, due to the
interrelationship between the interim
final rules and our continuing
evaluation of further appropriate
regulatory action, we have determined
that it is necessary and appropriate to
extend the expiration dates in the
interim final rules from February 11,
2017 to February 11, 2018.25 If we adopt
further rules relating to issues raised in
the SBS Communications Proposing
Release about the application of the
Securities Act or the other federal
securities laws to security-based swaps
before February 11, 2018, we may
determine to alter the expiration dates
in the interim final rules as part of that
rulemaking. We only are extending the
expiration dates in the interim final
rules; we are not making any other
changes to the interim final rules.
25 In conjunction with the extension of the
expiration dates in the interim final rules, we also
extended certain of the temporary relief we adopted
in July 2011 that provided exemptions from
compliance with certain provisions of the Exchange
Act to February 5, 2018. This relief was set to expire
on February 5, 2017 and exempts security-based
swap activities from the application of the
Exchange Act other than certain antifraud and antimanipulation provisions, all Exchange Act
provisions related to security-based swaps added or
amended by Title VII of the Dodd-Frank Act,
including the amended definition of ‘‘security’’ in
Section 3(a)(10), and certain other Exchange Act
provisions. See Order Extending Certain Temporary
Exemptions under the Securities Exchange Act of
1934 in Connection with the Revision of the
Definition of ‘‘Security’’ to Encompass SecurityBased Swaps and Request for Comment, Release
No. 34–79833 (Jan. 18, 2017), 82 FR 8467 (Jan. 25,
2017). See also Order Granting Temporary
Exemptions under the Securities Exchange Act of
1934 in Connection with the Pending Revisions of
the Definition of ‘‘Security’’ to Encompass SecurityBased Swaps, Release No. 34–64795 (Jul. 1, 2011),
76 FR 39927 (Jul. 7, 2011).
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II. Certain Administrative Law Matters
Section 553(b) of the Administrative
Procedure Act 26 generally requires an
agency to publish notice of a proposed
rulemaking in the Federal Register. This
requirement does not apply, however, if
the agency ‘‘for good cause finds (and
incorporates the finding and a brief
statement of reasons therefore in the
rules issued) that notice and public
procedure thereon are impracticable,
unnecessary, or contrary to the public
interest.’’ 27 Further, the Administrative
Procedure Act also generally requires
that an agency publish an adopted rule
in the Federal Register 30 days before
it becomes effective.28 This requirement
does not apply, however, if the agency
finds good cause for making the rule
effective sooner.29 We, for good cause,
find that notice and solicitation of
comment before adopting the
amendments to the interim final rules is
impracticable, unnecessary, or contrary
to the public interest. We also find good
cause not to delay the effective date of
the amendments to the interim final
rules.
For the reasons we discuss throughout
this release, we believe that we have
good cause to act immediately to adopt
the amendments to the interim final
rules to extend the expiration dates in
the interim final rules. The extension of
the expiration dates in the interim final
rules is intended to minimize
disruptions and costs to the securitybased swaps market that could occur if
the interim final rules expire. The
interim final rules are needed to allow
market participants that meet the
conditions of the interim final rules to
continue to enter into security-based
swap transactions without concern that
such activities will be subject to the
registration requirements of the
Securities Act and the Exchange Act
and the indenture qualification
provisions of the Trust Indenture Act
while we continue to evaluate the
implications for security-based swaps as
securities and determine whether other
regulatory action, including the SBS
Communications Proposal, is
appropriate.
Absent an extension, the interim final
rules will expire on February 11, 2017.
The interim final rules have been in
place since July 2011 and market
participants have relied on them to
enter into security-based swap
transactions. Extending the expiration
dates in the interim final rules will not
affect the substantive provisions of the
26 5
U.S.C. 553(b).
27 Id.
28 See
5 U.S.C. 553(d).
29 Id.
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interim final rules and will allow
market participants that meet the
conditions of the interim final rules to
continue to enter into security-based
swap transactions without concern that
such activities will be subject to the
registration requirements of the
Securities Act and the Exchange Act
and the indenture qualification
provisions of the Trust Indenture Act
while we continue to evaluate the
implications for security-based swaps as
securities and determine whether other
regulatory action, including the SBS
Communications Proposal, is
appropriate. Based on the foregoing and
for the reasons we discuss throughout
this release, we find that there is good
cause to have the amendments to the
interim final rules effective upon
publication in the Federal Register and
that notice and solicitation of comment
in advance of the effectiveness of the
amendments to the interim final rules is
impracticable, unnecessary or contrary
to the public interest.30
III. Economic Analysis
We are mindful of the costs imposed
by, and the benefits to be obtained from,
our rules. Section 2(b) of the Securities
Act and Section 3(f) of the Exchange Act
require the Commission, whenever it
engages in rulemaking and is required to
consider or determine whether an action
is necessary or appropriate in the public
interest, to consider, in addition to the
protection of investors, whether the
action would promote efficiency,
competition, and capital formation.31 In
addition, Section 23(a)(2) of the
Exchange Act requires the Commission,
when making rules under the Exchange
Act, to consider the impact such rules
would have on competition.32 Section
23(a)(2) of the Exchange Act prohibits
the Commission from adopting any rule
that would impose a burden on
competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act.33
As discussed above, we are adopting
amendments to the interim final rules to
extend the expiration dates in the
interim final rules to February 11, 2018.
Extending the expiration dates in the
interim final rules is intended to
minimize disruptions and costs to the
security-based swaps market that could
30 This finding also satisfies the requirements of
5 U.S.C. 808(2), allowing the rule amendment to
become effective notwithstanding the requirement
of 5 U.S.C. 801 (if a federal agency finds that notice
and public comment are ‘‘impractical, unnecessary
or contrary to the public interest,’’ a rule ‘‘shall take
effect at such time as the federal agency
promulgating the rule determines’’).
31 See 15 U.S.C. 77b(b) and 15 U.S.C. 78c(f).
32 See 15 U.S.C. 78w(a)(2).
33 Id.
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occur on the current expiration date of
the interim final rules. The interim final
rules are needed to allow market
participants that meet the conditions of
the interim final rules to continue to
enter into security-based swap
transactions without concern that such
activities will be subject to the
registration requirements of the
Securities Act and the Exchange Act
and the indenture qualification
provisions of the Trust Indenture Act.
The interim final rules currently in
effect serve as the economic baseline
against which the costs and benefits, as
well as the impact on efficiency,
competition, and capital formation, of
the amendments are measured. Because
the extension of the expiration dates in
the interim final rules maintains the
status quo, we do not expect additional
significant costs or benefits to result
from the extension. We also do not
expect the extension to have additional
significant effects on efficiency,
competition, or capital formation. The
interim final rules will continue to
exempt certain security-based swaps
from all provisions of the Securities Act,
other than the Section 17(a) antifraud
provisions,34 as well as exempt these
security-based swaps from Exchange
Act registration requirements, and from
the provisions of the Trust Indenture
Act, provided certain conditions are
met.
In the alternative, we could allow the
interim final rules to expire by not
extending their expiration date. In this
scenario, market participants who
continue to effect security-based swap
transactions would have to determine
whether another exemption from the
registration requirements of the
Securities Act is available so that they
may be able to rely on that exemption.
If no Securities Act exemptions are
available for a security-based swap
transaction following the expiration of
the interim final rules, such a
transaction would have to be registered
under the Securities Act. The
counterparties to such a transaction also
would have to consider whether they
need to comply with the registration
requirements of the Exchange Act and
the indenture provisions of the Trust
Indenture Act. We believe that requiring
compliance with these provisions at this
time for security-based swap
transactions between ECPs likely would
disrupt and impose new costs on this
segment of the security-based swaps
market. For example, if market
participants are required to register the
offer and sale of these security-based
swaps under the Securities Act, they
34 See
15 U.S.C. 77q(a).
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would have to incur the additional costs
of such registration, including legal and
accounting costs, as well as the costs
associated with preparing the disclosure
documents describing these securitybased swaps. Market participants also
may incur costs associated with the
registration of these security-based
swaps under the Exchange Act and
compliance with the Trust Indenture
Act, including preparing indentures and
arranging for the services of a trustee.
It is also possible that if we were to
allow the interim final rules to expire,
efficiency and capital formation may be
impaired. Failing to extend the
expiration dates in the interim final
rules may result in disruptions and
costs to the security-based swaps market
that could impede efficiency.
Additionally, some market participants
may not continue to participate in
certain security-based swap transactions
if compliance with these provisions
were infeasible (economically or
otherwise). In that case, capital
formation may be impaired to the extent
that some market participants use these
security-based swap transactions to
hedge risks, including those related to
the issuance of the referenced securities
(as may occur with equity swaps and
the issuance of convertible bonds). For
example, if registration of these
transactions is required under our
existing Securities Act registration
scheme, issuers of security-based swaps
may be forced to provide disclosure
about their security-based swap
positions that might not otherwise be
disclosed to the market. This position
disclosure could lead to a decreased use
of security-based swaps by these market
participants, which could potentially
impair capital formation to the extent
counterparties might use security-based
swaps for hedging their exposure to
issuers of referenced securities. Such a
decrease in the use of security-based
swaps also could lead to reduced
liquidity of the underlying securities,
which could raise the costs of capital for
issuers of those securities.
We also recognize that there may be
certain benefits associated with letting
the interim final rules expire. Without
the exemptions provided for in the
interim final rules, a market participant
may have to file a registration statement
covering the offer and sale of the
security-based swaps, may have to
register the class of security-based
swaps that it has issued under the
Exchange Act, and may have to satisfy
the applicable provisions of the Trust
Indenture Act, which would provide
investors with additional information
and in certain cases civil remedies. For
example, a registration statement
PO 00000
Frm 00006
Fmt 4700
Sfmt 4700
covering the offer and sale of the
security-based swaps may provide
certain information about the market
participants, the security-based swap
contract terms, and the identification of
the particular reference securities,
issuers, or loans underlying the
security-based swap. Additionally,
although investors currently may pursue
antifraud actions in connection with the
purchase and sale of security-based
swaps under Section 10(b) of the
Exchange Act,35 if market participants
were required to file registration
statements under the Securities Act,
investors may also be able to pursue
civil remedies under Sections 11 or 12
of the Securities Act.36
IV. Paperwork Reduction Act
The interim final rules do not impose
any new ‘‘collections of information’’
within the meaning of the Paperwork
Reduction Act of 1995 (‘‘PRA’’),37 nor
do they create any new filing, reporting,
recordkeeping, or disclosure reporting
requirements. Accordingly, we did not
submit the interim final rules to the
Office of Management and Budget for
review in accordance with the PRA.38
We requested comment on whether our
conclusion that there are no collections
of information is correct, and we did not
receive any comment.
V. Regulatory Flexibility Act
Certification
We hereby certify pursuant to 5 U.S.C.
605(b) that extending the expiration
dates in the interim final rules will not
have a significant economic impact on
a substantial number of small entities.39
The interim final rules apply only to
counterparties that may engage in
security-based swap transactions in
reliance on the interim final rule
providing an exemption under the
Securities Act. The interim final rule
under the Securities Act provides that
the exemption is available only to
security-based swaps that are entered
into between eligible contract
participants, as that term is defined in
Section 1a(12) of the Commodity
Exchange Act as in effect prior to the
Title VII effective date, and other than
with respect to persons determined by
35 See
15 U.S.C. 78j(b).
15 U.S.C. 77k–l. Regardless of the
extension, however, we can always pursue an
antifraud action in the offer and sale of securitybased swaps under Section 17(a) of the Securities
Act. See 15 U.S.C. 77q.
37 44 U.S.C. 3501 et seq.
38 44 U.S.C. 3507(d) and 5 CFR 1320.11.
39 We certified pursuant to 5 U.S.C. 605(b) that
the interim final rules will not have a significant
economic impact on a substantial number of small
entities. See Interim Final Rules Adopting Release.
We received no comments on that certification.
36 See
E:\FR\FM\15FER1.SGM
15FER1
Federal Register / Vol. 82, No. 30 / Wednesday, February 15, 2017 / Rules and Regulations
the CFTC to be eligible contract
participants pursuant to Section
1a(12)(C) of the Commodity Exchange
Act. Based on our existing information
about the security-based swaps market,
including our existing information
about participants in the security-based
swaps market, we believe that the
interim final rules apply to few, if any,
small entities. For this reason, the
extension of the expiration dates in the
interim final rules should not have a
significant economic impact on a
substantial number of small entities.
a person who is an eligible contract
participant under Section 1a(12)(C) of
the Commodity Exchange Act as in
effect prior to July 16, 2011).
(b) The exemption provided in
paragraph (a) of this section does not
apply to the provisions of Section 17(a)
of the Act (15 U.S.C. 77q(a)).
(c) This section will expire on
February 11, 2018.
VI. Statutory Authority and Text of the
Rules and Amendments
The amendments described in this
release are being adopted under the
authority set forth in Sections 19 and 28
of the Securities Act, Sections 12(h),
23(a) and 36 of the Exchange Act, and
Section 304(d) of the Trust Indenture
Act.
■
List of Subjects in 17 CFR Parts 230,
240 and 260
Reporting and recordkeeping
requirements, Securities.
Text of the Rules and Amendments
For the reasons set out in the
preamble, the Commission amends 17
CFR parts 230, 240, and 260 as follows:
PART 230—GENERAL RULES AND
REGULATIONS, SECURITIES ACT OF
1933
1. The authority citation for part 230
continues to read, in part, as follows:
■
Authority: 15 U.S.C. 77b, 77b note, 77c,
77d, 77d note, 77f, 77g, 77h, 77j, 77r, 77s,
77z–3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n,
78o, 78o–7 note, 78t, 78w, 78ll(d), 78mm,
80a–8, 80a–24, 80a–28, 80a–29, 80a–30, and
80a–37, and Pub. L. 112–106, sec. 201(a), sec.
401, 126 Stat. 313 (2012), unless otherwise
noted.
*
*
§ 230.240
*
*
3. The authority citation for part 240
continues to read, in part, as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f,
78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m,
78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q,
78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm,
80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–
4, 80b–11, 7201 et seq. and 8302; 7 U.S.C.
2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111–203, 939A, 124 Stat. 1376
(2010); and Pub. L. 112–106, sec. 503 and
602, 126 Stat. 326 (2012), unless otherwise
noted.
*
*
*
§ 240.12a–11
*
*
4. Section 240.12a–11 is revised to
read as follows:
■
§ 240.12a–11 Exemption of security-based
swaps sold in reliance on Securities Act of
1933 Rule 240 (§ 230.240) from section 12(a)
of the Act.
(a) The provisions of Section 12(a) of
the Act (15 U.S.C. 78l(a)) do not apply
to any security-based swap offered and
sold in reliance on § 230.240 of this
chapter.
(b) This section will expire on
February 11, 2018.
§ 240.12h–1
[Amended]
5. In § 240.12h–1, paragraph (i) is
revised to read as follows:
*
[Amended]
§ 240.12h–1 Exemptions from registration
under section 12(g) of the Act.
2. Section 230.240 is revised to read
as follows:
*
§ 230.240 Exemption for certain securitybased swaps.
(a) Except as expressly provided in
paragraph (b) of this section, the Act
does not apply to the offer or sale of any
security-based swap that is:
(1) A security-based swap agreement,
as defined in Section 2A of the Act (15
U.S.C. 77b(b)–1) as in effect prior to July
16, 2011; and
(2) Entered into between eligible
contract participants (as defined in
Section 1a(12) of the Commodity
Exchange Act (7 U.S.C. 1a(12)) as in
effect prior to July 16, 2011, other than
VerDate Sep<11>2014
16:57 Feb 14, 2017
Jkt 241001
*
*
*
*
(i) Any security-based swap offered
and sold in reliance on § 230.240 of this
chapter. This section will expire on
February 11, 2018.
PART 260—GENERAL RULES AND
REGULATIONS, TRUST INDENTURE
ACT OF 1939
6. The authority citation for part 260
continues to read as follows:
■
Authority: 15 U.S.C. 77c, 77ddd, 77eee,
77ggg, 77nnn, 77sss, 78ll(d), 80b–3, 80b–4,
and 80b–11, unless otherwise noted.
*
PO 00000
*
*
Frm 00007
*
Fmt 4700
*
Sfmt 4700
[Amended]
7. Section 260.4d–12 is revised to read
as follows:
■
§ 260.4d–12 Exemption for security-based
swaps offered and sold in reliance on
Securities Act of 1933 Rule 240 (§ 230.240).
Any security-based swap offered and
sold in reliance on § 230.240 of this
chapter, whether or not issued under an
indenture, is exempt from the Act. This
section will expire on February 11,
2018.
By the Commission.
Dated: February 10, 2017.
Brent J. Fields,
Secretary.
[FR Doc. 2017–03121 Filed 2–14–17; 8:45 am]
BILLING CODE 8011–01–P
PENSION BENEFIT GUARANTY
CORPORATION
29 CFR Part 4022
Benefits Payable in Terminated SingleEmployer Plans; Interest Assumptions
for Paying Benefits
Pension Benefit Guaranty
Corporation.
ACTION: Final rule.
AGENCY:
[Amended]
■
■
mstockstill on DSK3G9T082PROD with RULES
PART 240—GENERAL RULES AND
REGULATIONS, SECURITIES
EXCHANGE ACT OF 1934
§ 260.4d–12
10707
This final rule amends the
Pension Benefit Guaranty Corporation’s
regulation on Benefits Payable in
Terminated Single-Employer Plans to
prescribe interest assumptions under
the regulation for valuation dates in
March 2017. The interest assumptions
are used for paying benefits under
terminating single-employer plans
covered by the pension insurance
system administered by PBGC.
DATES: Effective March 1, 2017.
FOR FURTHER INFORMATION CONTACT:
Deborah C. Murphy (Murphy.Deborah@
pbgc.gov), Assistant General Counsel for
Regulatory Affairs, Pension Benefit
Guaranty Corporation, 1200 K Street
NW., Washington, DC 20005, 202–326–
4400 ext. 3451. (TTY/TDD users may
call the Federal relay service toll-free at
1–800–877–8339 and ask to be
connected to 202–326–4400 ext. 3451.)
SUPPLEMENTARY INFORMATION: PBGC’s
regulation on Benefits Payable in
Terminated Single-Employer Plans (29
CFR part 4022) prescribes actuarial
assumptions—including interest
assumptions—for paying plan benefits
under terminating single-employer
plans covered by title IV of the
Employee Retirement Income Security
Act of 1974. The interest assumptions in
the regulation are also published on
PBGC’s Web site (https://www.pbgc.gov).
SUMMARY:
E:\FR\FM\15FER1.SGM
15FER1
]]>Agencies
[Federal Register Volume 82, Number 30 (Wednesday, February 15, 2017)]
[Rules and Regulations]
[Pages 10703-10707]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03121]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 230, 240, and 260
[Release Nos. 33-10305; 34-80023; 39-2515; File No. S7-26-11]
RIN 3235-AL17
Exemptions for Security-Based Swaps
AGENCY: Securities and Exchange Commission.
ACTION: Interim final rule.
-----------------------------------------------------------------------
SUMMARY: We are adopting amendments to the expiration dates in our
interim final rules that provide exemptions under the Securities Act of
1933, the Securities Exchange Act of 1934, and the Trust Indenture Act
of 1939 for those security-based swaps that prior to July 16, 2011 were
security-based swap agreements and are defined as ``securities'' under
the Securities Act and the Exchange Act as of July 16, 2011 due solely
to the provisions of Title VII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act. Under the amendments, the expiration dates in
the interim final rules will be February 11, 2018.
DATES: The amendments are effective February 15, 2017. See Section I of
the SUPPLEMENTARY INFORMATION concerning amendment of expiration dates
in the interim final rules.
FOR FURTHER INFORMATION CONTACT: Andrew Schoeffler, Special Counsel,
Office of Capital Markets Trends, Division of Corporation Finance, at
(202) 551-3860, U.S. Securities and Exchange Commission, 100 F Street
NE., Washington, DC 20549-3628.
SUPPLEMENTARY INFORMATION: We are adopting amendments to the following
rules: Interim final Rule 240 under the Securities Act of 1933
(``Securities Act''),\1\ interim final Rules 12a-11 and 12h-1(i) under
the Securities Exchange Act of 1934 (``Exchange Act''),\2\ and interim
final Rule 4d-12 under the Trust Indenture Act of 1939 (``Trust
Indenture Act'').\3\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 77a et seq.
\2\ 15 U.S.C. 78a et seq.
\3\ 15 U.S.C. 77aaa et seq.
---------------------------------------------------------------------------
I. Amendment of Expiration Dates in the Interim Final Rules
A. Background Regarding the Interim Final Rules
In July 2011, we adopted interim final Rule 240 under the
Securities Act, interim final Rules 12a-11 and 12h-1(i) under the
Exchange Act, and interim final Rule 4d-12 under the Trust Indenture
Act (collectively, the ``interim final rules'').\4\ The interim final
rules provide exemptions under the Securities Act, the Exchange Act,
and the Trust Indenture Act for those security-based swaps that prior
to July 16, 2011 (``Title VII effective date'') were ``security-based
swap agreements'' and are defined as ``securities'' under the
Securities Act and the Exchange Act as of the Title VII effective date
due solely to the provisions of Title VII of the Dodd-Frank Act.\5\ The
interim final rules exempt offers and sales of security-based swap
agreements that became security-based swaps on the Title VII effective
date from all provisions of the Securities Act, other than the Section
17(a) anti-fraud provisions, as well as from the Exchange Act
registration requirements and from the provisions of the Trust
Indenture Act,\6\ provided certain conditions are met.\7\ We have
adopted amendments to the interim final rules to extend the expiration
dates in the interim final rules, first from February 11, 2013 to
February 11, 2014,\8\ and then from February 11, 2014 to February 11,
2017.\9\
---------------------------------------------------------------------------
\4\ See 17 CFR 230.240, 17 CFR 240.12a-11, 17 CFR 240.12h-1, and
17 CFR 260.4d-12. See also Exemptions for Security-Based Swaps,
Release No. 33-9231 (Jul. 1, 2011), 76 FR 40605 (Jul. 11, 2011)
(``Interim Final Rules Adopting Release'').
\5\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010). The provisions of
Title VII generally were effective on July 16, 2011 (360 days after
enactment of the Dodd-Frank Act), unless a provision requires a
rulemaking. If a Title VII provision requires a rulemaking, it will
go into effect ``not less than'' 60 days after publication of the
related final rule or on July 16, 2011, whichever is later. See
Section 774 of the Dodd-Frank Act.
\6\ The category of security-based swaps covered by the interim
final rules involves those that would have been defined as
``security-based swap agreements'' prior to the enactment of Title
VII. That definition of ``security-based swap agreement'' does not
include security-based swaps that are based on or reference only
loans and indexes only of loans. The Division of Corporation Finance
issued a no-action letter that addressed the availability of the
interim final rules to offers and sales of security-based swaps that
are based on or reference only loans or indexes only of loans. See
Cleary Gottlieb Steen & Hamilton LLP (Jul. 15, 2011). The Cleary
Gottlieb No-Action Letter will remain in effect for so long as the
interim final rules remain in effect.
\7\ The security-based swap that is exempt must be a security-
based swap agreement (as defined prior to the Title VII effective
date) and entered into between eligible contract participants (as
defined prior to the Title VII effective date). See Rule 240 under
the Securities Act [17 CFR 230.240]. See also Interim Final Rules
Adopting Release.
\8\ See Extension of Exemptions for Security-Based Swaps,
Release No. 33-9383 (Jan. 29, 2013), 78 FR 7654 (Feb. 4, 2013).
\9\ See Extension of Exemptions for Security-Based Swaps,
Release No. 33-9545 (Feb. 5, 2014), 79 FR 7570 (Feb. 10, 2014)
(``Extension Adopting Release'').
---------------------------------------------------------------------------
Title VII amended the Securities Act and the Exchange Act to
include ``security-based swaps'' in the definition of ``security'' for
purposes of those statutes.\10\ As a result, ``security-based swaps''
became subject to the provisions of the Securities Act and the Exchange
Act and the rules and regulations thereunder applicable to
``securities.'' \11\
[[Page 10704]]
The interim final rules were intended to allow security-based swap
agreements that became security-based swaps on the Title VII effective
date to continue to trade as they did prior to the enactment of Title
VII.\12\ We adopted the interim final rules because, among other
things, we were concerned about disrupting the operation of the
security-based swaps market while we evaluated the implications for
security-based swaps under the Securities Act and the Exchange Act as a
result of the inclusion of the term ``security-based swap'' in the
definition of ``security'' for purposes of those statutes.\13\
---------------------------------------------------------------------------
\10\ See Sections 761(a)(2) and 768(a)(1) of the Dodd-Frank Act
(amending Section 3(a)(10) of the Exchange Act [15 U.S.C.
78c(a)(10)] and Section 2(a)(1) of the Securities Act [15 U.S.C.
77b(a)(1)], respectively).
\11\ The Securities Act requires that any offer and sale of a
security must be either registered under the Securities Act or made
pursuant to an exemption from registration. See Section 5 of the
Securities Act [15 U.S.C. 77e]. In addition, certain provisions of
the Exchange Act relating to the registration of classes of
securities and the indenture qualification provisions of the Trust
Indenture Act of 1939 (``Trust Indenture Act'') [15 U.S.C. 77aaa et
seq.] also potentially could apply to security-based swaps. The
provisions of Section 12 of the Exchange Act could, without an
exemption, require that security-based swaps be registered before a
transaction could be effected on a national securities exchange. See
Section 12(a) of the Exchange Act [15 U.S.C. 78l(a)]. In addition,
registration of a class of security-based swaps under Section 12(g)
of the Exchange Act could be required if the security-based swap is
considered an equity security and held of record by either 2000
persons or 500 persons who are not accredited investors at the end
of a fiscal year. See Section 12(g)(1)(A) of the Exchange Act [15
U.S.C. 78l(g)(1)(A)]. Further, without an exemption, the Trust
Indenture Act could require qualification of an indenture for
security-based swaps considered to be debt. See 15 U.S.C. 77aaa et
seq.
\12\ See Interim Final Rules Adopting Release.
\13\ Id. Prior to the Title VII effective date, security-based
swap agreements that became security-based swaps on the Title VII
effective date were outside the scope of the federal securities
laws, other than the anti-fraud and certain other provisions. See
Section 2A of the Securities Act [15 U.S.C. 77b(b)-1)] and Section
3A of the Exchange Act [15 U.S.C. 78c-1], each as in effect prior to
the Title VII effective date.
---------------------------------------------------------------------------
At the time of adoption of the interim final rules in July 2011, we
requested comment on various aspects of the interim final rules.\14\ In
response to the request for comment, commenters expressed concerns
regarding the availability of exemptions from the registration
requirements of the Securities Act, including the exemption in Section
4(a)(2), for security-based swap transactions entered into solely
between eligible contract participants (``ECPs'') due to the operation
of certain trading platforms and the publication or distribution of
other information regarding security-based swaps.\15\ Commenters
indicated that the publication or distribution of certain
communications involving security-based swaps on an unrestricted basis
could be viewed as offers of those security-based swaps within the
meaning of Section 2(a)(3) of the Securities Act,\16\ and such
communications would require compliance with the registration
provisions of Section 5 of the Securities Act unless there is an
available exemption from such registration requirements.\17\ Further,
such communications may be considered offers to persons who are not
ECPs, even if such persons are not permitted to purchase the security-
based swaps.\18\ Under Section 5(e) of the Securities Act, it is
unlawful to make offers or sales of security-based swaps to persons who
are not ECPs unless the security-based swaps are registered under the
Securities Act.\19\ Commenters indicated that if there is no Securities
Act exemption available with respect to a security-based swap
transaction, the required registration of such transactions could
negatively impact the security-based swaps market.\20\
---------------------------------------------------------------------------
\14\ See Interim Final Rules Adopting Release. The Commission
also requested comment on certain of these matters in an earlier
proposing release regarding exemptions for security-based swap
transactions involving an eligible clearing agency. See Exemptions
For Security-Based Swaps Issued By Certain Clearing Agencies,
Release No. 33-9222 (Jun. 9, 2011), 76 FR 34920 (Jun. 15, 2011).
\15\ See Extension Adopting Release.
\16\ See 15 U.S.C. 77b(a)(3).
\17\ See Extension Adopting Release.
\18\ Id.
\19\ See Section 5(e) of the Securities Act [15 U.S.C. 77e(e)])
(Notwithstanding the provisions of section 3 or 4, unless a
registration statement meeting the requirements of section 10(a) is
in effect as to a security-based swap, it shall be unlawful for any
person, directly or indirectly, to make use of any means or
instruments of transportation or communication in interstate
commerce or of the mails to offer to sell, offer to buy or purchase
or sell a security-based swap to any person who is not an eligible
contract participant).
\20\ See Extension Adopting Release.
---------------------------------------------------------------------------
As noted above, we twice have extended the expiration dates in the
interim final rules.\21\ These extensions have enabled us to continue
our evaluation of the implications for security-based swaps as
securities and determine whether other regulatory action is
appropriate. We indicated when we extended the expiration dates that we
were carefully considering the comments we had received on the interim
final rules as part of our evaluation of the implications for security-
based swaps resulting from the inclusion of the term ``security-based
swap'' in the definition of ``security'' under the Securities Act and
the Exchange Act.\22\ We continue to consider those comments as we
evaluate whether other regulatory action is appropriate, including the
proposal discussed in the next section.
---------------------------------------------------------------------------
\21\ See footnotes 8 and 9 above and accompanying text.
\22\ See Extension Adopting Release.
---------------------------------------------------------------------------
B. SBS Communications Proposal
Subsequent to the most recent extension of the expiration dates in
the interim final rules, we proposed a rule under the Securities Act to
provide that certain communications involving security-based swaps that
may be purchased only by ECPs would not be deemed for purposes of
Section 5 of the Securities Act to constitute offers of the security-
based swaps that are the subject of such communications or any
guarantees of such security-based swaps that are securities (``SBS
Communications Proposal'').\23\ The SBS Communications Proposal would
cover the dissemination of price quotes that relate to security-based
swaps that may be purchased only by ECPs and are traded or processed on
or through certain trading platforms. The SBS Communications Proposal
would enable price quotes relating to security-based swaps to be
disseminated on an unrestricted basis without concern that such
dissemination could jeopardize the availability of exemptions from the
registration requirements of the Securities Act for transactions
involving the security-based swaps that are the subject of such
communications. The Commission requested comment on all aspects of the
SBS Communications Proposal, including whether it should cover types of
communications other than price quotes, such as communications
characterized as research that relate to or discuss security-based
swaps.\24\ The Commission is evaluating the comments received and has
not yet taken final action as to the SBS Communications Proposal.
---------------------------------------------------------------------------
\23\ See Treatment of Certain Communications Involving Security-
Based Swaps That May Be Purchased Only By Eligible Contract
Participants, Release No. 33-9643 (Sep. 8, 2014), 79 FR 54224 (Sep.
11, 2014) (``SBS Communications Proposing Release'').
\24\ Id. The SBS Communications Proposing Release discussed the
types of communications covered and not covered by the proposal and
included an extensive request for comment about communications
characterized as research that relate to security-based swaps.
---------------------------------------------------------------------------
C. Extension of the Interim Final Rules
In this release, we are extending the expiration dates in the
interim final rules from February 11, 2017 to February 11, 2018. We
believe that the interim final rules are needed to avoid disruption in
the security-based swaps market while we continue to consider in a
thorough and deliberative manner whether other regulatory action is
appropriate. If the interim final rules expire on February 11, 2017,
market participants entering into security-based swap transactions will
have to consider whether they need to register the offer and sale of
the security-based swaps under the Securities Act. Market participants
also will have to consider whether they may be required to comply with
the registration provisions of the Exchange Act applicable to classes
of securities and the indenture provisions of the Trust Indenture Act.
We believe that requiring compliance with these provisions while we
continue to evaluate the implications for security-based swaps as
securities and determine whether other regulatory action, including the
SBS Communications Proposal, is appropriate could have an impact on the
operation of the security-based swaps market. Thus, the interim
[[Page 10705]]
final rules are needed to allow market participants that meet the
conditions of the interim final rules to continue to enter into
security-based swap transactions without concern that such activities
may not comply with the applicable provisions of the Securities Act,
the Exchange Act, and the Trust Indenture Act.
Based on the foregoing, we believe that it is necessary and
appropriate in the public interest and consistent with the protection
of investors to continue providing the exemptions from all provisions
of the Securities Act (other than the Section 17(a) antifraud
provisions), the registration requirements of the Exchange Act relating
to classes of securities, and the indenture provisions of the Trust
Indenture Act for those security-based swaps that prior to the Title
VII effective date were security-based swap agreements, provided
certain conditions are met. Accordingly, due to the interrelationship
between the interim final rules and our continuing evaluation of
further appropriate regulatory action, we have determined that it is
necessary and appropriate to extend the expiration dates in the interim
final rules from February 11, 2017 to February 11, 2018.\25\ If we
adopt further rules relating to issues raised in the SBS Communications
Proposing Release about the application of the Securities Act or the
other federal securities laws to security-based swaps before February
11, 2018, we may determine to alter the expiration dates in the interim
final rules as part of that rulemaking. We only are extending the
expiration dates in the interim final rules; we are not making any
other changes to the interim final rules.
---------------------------------------------------------------------------
\25\ In conjunction with the extension of the expiration dates
in the interim final rules, we also extended certain of the
temporary relief we adopted in July 2011 that provided exemptions
from compliance with certain provisions of the Exchange Act to
February 5, 2018. This relief was set to expire on February 5, 2017
and exempts security-based swap activities from the application of
the Exchange Act other than certain antifraud and anti-manipulation
provisions, all Exchange Act provisions related to security-based
swaps added or amended by Title VII of the Dodd-Frank Act, including
the amended definition of ``security'' in Section 3(a)(10), and
certain other Exchange Act provisions. See Order Extending Certain
Temporary Exemptions under the Securities Exchange Act of 1934 in
Connection with the Revision of the Definition of ``Security'' to
Encompass Security-Based Swaps and Request for Comment, Release No.
34-79833 (Jan. 18, 2017), 82 FR 8467 (Jan. 25, 2017). See also Order
Granting Temporary Exemptions under the Securities Exchange Act of
1934 in Connection with the Pending Revisions of the Definition of
``Security'' to Encompass Security-Based Swaps, Release No. 34-64795
(Jul. 1, 2011), 76 FR 39927 (Jul. 7, 2011).
---------------------------------------------------------------------------
II. Certain Administrative Law Matters
Section 553(b) of the Administrative Procedure Act \26\ generally
requires an agency to publish notice of a proposed rulemaking in the
Federal Register. This requirement does not apply, however, if the
agency ``for good cause finds (and incorporates the finding and a brief
statement of reasons therefore in the rules issued) that notice and
public procedure thereon are impracticable, unnecessary, or contrary to
the public interest.'' \27\ Further, the Administrative Procedure Act
also generally requires that an agency publish an adopted rule in the
Federal Register 30 days before it becomes effective.\28\ This
requirement does not apply, however, if the agency finds good cause for
making the rule effective sooner.\29\ We, for good cause, find that
notice and solicitation of comment before adopting the amendments to
the interim final rules is impracticable, unnecessary, or contrary to
the public interest. We also find good cause not to delay the effective
date of the amendments to the interim final rules.
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\26\ 5 U.S.C. 553(b).
\27\ Id.
\28\ See 5 U.S.C. 553(d).
\29\ Id.
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For the reasons we discuss throughout this release, we believe that
we have good cause to act immediately to adopt the amendments to the
interim final rules to extend the expiration dates in the interim final
rules. The extension of the expiration dates in the interim final rules
is intended to minimize disruptions and costs to the security-based
swaps market that could occur if the interim final rules expire. The
interim final rules are needed to allow market participants that meet
the conditions of the interim final rules to continue to enter into
security-based swap transactions without concern that such activities
will be subject to the registration requirements of the Securities Act
and the Exchange Act and the indenture qualification provisions of the
Trust Indenture Act while we continue to evaluate the implications for
security-based swaps as securities and determine whether other
regulatory action, including the SBS Communications Proposal, is
appropriate.
Absent an extension, the interim final rules will expire on
February 11, 2017. The interim final rules have been in place since
July 2011 and market participants have relied on them to enter into
security-based swap transactions. Extending the expiration dates in the
interim final rules will not affect the substantive provisions of the
interim final rules and will allow market participants that meet the
conditions of the interim final rules to continue to enter into
security-based swap transactions without concern that such activities
will be subject to the registration requirements of the Securities Act
and the Exchange Act and the indenture qualification provisions of the
Trust Indenture Act while we continue to evaluate the implications for
security-based swaps as securities and determine whether other
regulatory action, including the SBS Communications Proposal, is
appropriate. Based on the foregoing and for the reasons we discuss
throughout this release, we find that there is good cause to have the
amendments to the interim final rules effective upon publication in the
Federal Register and that notice and solicitation of comment in advance
of the effectiveness of the amendments to the interim final rules is
impracticable, unnecessary or contrary to the public interest.\30\
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\30\ This finding also satisfies the requirements of 5 U.S.C.
808(2), allowing the rule amendment to become effective
notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency
finds that notice and public comment are ``impractical, unnecessary
or contrary to the public interest,'' a rule ``shall take effect at
such time as the federal agency promulgating the rule determines'').
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III. Economic Analysis
We are mindful of the costs imposed by, and the benefits to be
obtained from, our rules. Section 2(b) of the Securities Act and
Section 3(f) of the Exchange Act require the Commission, whenever it
engages in rulemaking and is required to consider or determine whether
an action is necessary or appropriate in the public interest, to
consider, in addition to the protection of investors, whether the
action would promote efficiency, competition, and capital
formation.\31\ In addition, Section 23(a)(2) of the Exchange Act
requires the Commission, when making rules under the Exchange Act, to
consider the impact such rules would have on competition.\32\ Section
23(a)(2) of the Exchange Act prohibits the Commission from adopting any
rule that would impose a burden on competition not necessary or
appropriate in furtherance of the purposes of the Exchange Act.\33\
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\31\ See 15 U.S.C. 77b(b) and 15 U.S.C. 78c(f).
\32\ See 15 U.S.C. 78w(a)(2).
\33\ Id.
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As discussed above, we are adopting amendments to the interim final
rules to extend the expiration dates in the interim final rules to
February 11, 2018. Extending the expiration dates in the interim final
rules is intended to minimize disruptions and costs to the security-
based swaps market that could
[[Page 10706]]
occur on the current expiration date of the interim final rules. The
interim final rules are needed to allow market participants that meet
the conditions of the interim final rules to continue to enter into
security-based swap transactions without concern that such activities
will be subject to the registration requirements of the Securities Act
and the Exchange Act and the indenture qualification provisions of the
Trust Indenture Act.
The interim final rules currently in effect serve as the economic
baseline against which the costs and benefits, as well as the impact on
efficiency, competition, and capital formation, of the amendments are
measured. Because the extension of the expiration dates in the interim
final rules maintains the status quo, we do not expect additional
significant costs or benefits to result from the extension. We also do
not expect the extension to have additional significant effects on
efficiency, competition, or capital formation. The interim final rules
will continue to exempt certain security-based swaps from all
provisions of the Securities Act, other than the Section 17(a)
antifraud provisions,\34\ as well as exempt these security-based swaps
from Exchange Act registration requirements, and from the provisions of
the Trust Indenture Act, provided certain conditions are met.
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\34\ See 15 U.S.C. 77q(a).
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In the alternative, we could allow the interim final rules to
expire by not extending their expiration date. In this scenario, market
participants who continue to effect security-based swap transactions
would have to determine whether another exemption from the registration
requirements of the Securities Act is available so that they may be
able to rely on that exemption. If no Securities Act exemptions are
available for a security-based swap transaction following the
expiration of the interim final rules, such a transaction would have to
be registered under the Securities Act. The counterparties to such a
transaction also would have to consider whether they need to comply
with the registration requirements of the Exchange Act and the
indenture provisions of the Trust Indenture Act. We believe that
requiring compliance with these provisions at this time for security-
based swap transactions between ECPs likely would disrupt and impose
new costs on this segment of the security-based swaps market. For
example, if market participants are required to register the offer and
sale of these security-based swaps under the Securities Act, they would
have to incur the additional costs of such registration, including
legal and accounting costs, as well as the costs associated with
preparing the disclosure documents describing these security-based
swaps. Market participants also may incur costs associated with the
registration of these security-based swaps under the Exchange Act and
compliance with the Trust Indenture Act, including preparing indentures
and arranging for the services of a trustee.
It is also possible that if we were to allow the interim final
rules to expire, efficiency and capital formation may be impaired.
Failing to extend the expiration dates in the interim final rules may
result in disruptions and costs to the security-based swaps market that
could impede efficiency. Additionally, some market participants may not
continue to participate in certain security-based swap transactions if
compliance with these provisions were infeasible (economically or
otherwise). In that case, capital formation may be impaired to the
extent that some market participants use these security-based swap
transactions to hedge risks, including those related to the issuance of
the referenced securities (as may occur with equity swaps and the
issuance of convertible bonds). For example, if registration of these
transactions is required under our existing Securities Act registration
scheme, issuers of security-based swaps may be forced to provide
disclosure about their security-based swap positions that might not
otherwise be disclosed to the market. This position disclosure could
lead to a decreased use of security-based swaps by these market
participants, which could potentially impair capital formation to the
extent counterparties might use security-based swaps for hedging their
exposure to issuers of referenced securities. Such a decrease in the
use of security-based swaps also could lead to reduced liquidity of the
underlying securities, which could raise the costs of capital for
issuers of those securities.
We also recognize that there may be certain benefits associated
with letting the interim final rules expire. Without the exemptions
provided for in the interim final rules, a market participant may have
to file a registration statement covering the offer and sale of the
security-based swaps, may have to register the class of security-based
swaps that it has issued under the Exchange Act, and may have to
satisfy the applicable provisions of the Trust Indenture Act, which
would provide investors with additional information and in certain
cases civil remedies. For example, a registration statement covering
the offer and sale of the security-based swaps may provide certain
information about the market participants, the security-based swap
contract terms, and the identification of the particular reference
securities, issuers, or loans underlying the security-based swap.
Additionally, although investors currently may pursue antifraud actions
in connection with the purchase and sale of security-based swaps under
Section 10(b) of the Exchange Act,\35\ if market participants were
required to file registration statements under the Securities Act,
investors may also be able to pursue civil remedies under Sections 11
or 12 of the Securities Act.\36\
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\35\ See 15 U.S.C. 78j(b).
\36\ See 15 U.S.C. 77k-l. Regardless of the extension, however,
we can always pursue an antifraud action in the offer and sale of
security-based swaps under Section 17(a) of the Securities Act. See
15 U.S.C. 77q.
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IV. Paperwork Reduction Act
The interim final rules do not impose any new ``collections of
information'' within the meaning of the Paperwork Reduction Act of 1995
(``PRA''),\37\ nor do they create any new filing, reporting,
recordkeeping, or disclosure reporting requirements. Accordingly, we
did not submit the interim final rules to the Office of Management and
Budget for review in accordance with the PRA.\38\ We requested comment
on whether our conclusion that there are no collections of information
is correct, and we did not receive any comment.
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\37\ 44 U.S.C. 3501 et seq.
\38\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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V. Regulatory Flexibility Act Certification
We hereby certify pursuant to 5 U.S.C. 605(b) that extending the
expiration dates in the interim final rules will not have a significant
economic impact on a substantial number of small entities.\39\ The
interim final rules apply only to counterparties that may engage in
security-based swap transactions in reliance on the interim final rule
providing an exemption under the Securities Act. The interim final rule
under the Securities Act provides that the exemption is available only
to security-based swaps that are entered into between eligible contract
participants, as that term is defined in Section 1a(12) of the
Commodity Exchange Act as in effect prior to the Title VII effective
date, and other than with respect to persons determined by
[[Page 10707]]
the CFTC to be eligible contract participants pursuant to Section
1a(12)(C) of the Commodity Exchange Act. Based on our existing
information about the security-based swaps market, including our
existing information about participants in the security-based swaps
market, we believe that the interim final rules apply to few, if any,
small entities. For this reason, the extension of the expiration dates
in the interim final rules should not have a significant economic
impact on a substantial number of small entities.
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\39\ We certified pursuant to 5 U.S.C. 605(b) that the interim
final rules will not have a significant economic impact on a
substantial number of small entities. See Interim Final Rules
Adopting Release. We received no comments on that certification.
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VI. Statutory Authority and Text of the Rules and Amendments
The amendments described in this release are being adopted under
the authority set forth in Sections 19 and 28 of the Securities Act,
Sections 12(h), 23(a) and 36 of the Exchange Act, and Section 304(d) of
the Trust Indenture Act.
List of Subjects in 17 CFR Parts 230, 240 and 260
Reporting and recordkeeping requirements, Securities.
Text of the Rules and Amendments
For the reasons set out in the preamble, the Commission amends 17
CFR parts 230, 240, and 260 as follows:
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
0
1. The authority citation for part 230 continues to read, in part, as
follows:
Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77d note, 77f,
77g, 77h, 77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n,
78o, 78o-7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28,
80a-29, 80a-30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec.
401, 126 Stat. 313 (2012), unless otherwise noted.
* * * * *
Sec. 230.240 [Amended]
0
2. Section 230.240 is revised to read as follows:
Sec. 230.240 Exemption for certain security-based swaps.
(a) Except as expressly provided in paragraph (b) of this section,
the Act does not apply to the offer or sale of any security-based swap
that is:
(1) A security-based swap agreement, as defined in Section 2A of
the Act (15 U.S.C. 77b(b)-1) as in effect prior to July 16, 2011; and
(2) Entered into between eligible contract participants (as defined
in Section 1a(12) of the Commodity Exchange Act (7 U.S.C. 1a(12)) as in
effect prior to July 16, 2011, other than a person who is an eligible
contract participant under Section 1a(12)(C) of the Commodity Exchange
Act as in effect prior to July 16, 2011).
(b) The exemption provided in paragraph (a) of this section does
not apply to the provisions of Section 17(a) of the Act (15 U.S.C.
77q(a)).
(c) This section will expire on February 11, 2018.
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
0
3. The authority citation for part 240 continues to read, in part, as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20,
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq. and 8302;
7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; Pub. L.
111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, sec. 503
and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
Sec. 240.12a-11 [Amended]
0
4. Section 240.12a-11 is revised to read as follows:
Sec. 240.12a-11 Exemption of security-based swaps sold in reliance on
Securities Act of 1933 Rule 240 (Sec. 230.240) from section 12(a) of
the Act.
(a) The provisions of Section 12(a) of the Act (15 U.S.C. 78l(a))
do not apply to any security-based swap offered and sold in reliance on
Sec. 230.240 of this chapter.
(b) This section will expire on February 11, 2018.
Sec. 240.12h-1 [Amended]
0
5. In Sec. 240.12h-1, paragraph (i) is revised to read as follows:
Sec. 240.12h-1 Exemptions from registration under section 12(g) of
the Act.
* * * * *
(i) Any security-based swap offered and sold in reliance on Sec.
230.240 of this chapter. This section will expire on February 11, 2018.
PART 260--GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF
1939
0
6. The authority citation for part 260 continues to read as follows:
Authority: 15 U.S.C. 77c, 77ddd, 77eee, 77ggg, 77nnn, 77sss,
78ll(d), 80b-3, 80b-4, and 80b-11, unless otherwise noted.
* * * * *
Sec. 260.4d-12 [Amended]
0
7. Section 260.4d-12 is revised to read as follows:
Sec. 260.4d-12 Exemption for security-based swaps offered and sold in
reliance on Securities Act of 1933 Rule 240 (Sec. 230.240).
Any security-based swap offered and sold in reliance on Sec.
230.240 of this chapter, whether or not issued under an indenture, is
exempt from the Act. This section will expire on February 11, 2018.
By the Commission.
Dated: February 10, 2017.
Brent J. Fields,
Secretary.
[FR Doc. 2017-03121 Filed 2-14-17; 8:45 am]
BILLING CODE 8011-01-P
