Extension of Exemptions for Security-Based Swaps, 7654-7659 [2013-02191]

Download as PDF 7654 Federal Register / Vol. 78, No. 23 / Monday, February 4, 2013 / Rules and Regulations SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 230, 240 and 260 [Release Nos. 33–9383; 34–68753; 39–2489; File No. S7–26–11] RIN 3235–AL17 Extension of Exemptions for SecurityBased Swaps Securities and Exchange Commission. ACTION: Interim final rule; extension. 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 extended to February 11, 2014. DATES: The amendments are effective February 4, 2013. 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 SUMMARY: mstockstill on DSK4VPTVN1PROD with RULES I. Amendment of Expiration Dates in 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 1 15 U.S.C. 77a et seq. U.S.C. 78a et seq. 3 15 U.S.C. 77aaa et seq. 2 15 VerDate Mar<15>2010 17:37 Feb 01, 2013 Jkt 229001 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 The interim final rules currently expire on February 11, 2013.8 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) (‘‘Cleary Gottlieb No-Action Letter’’). 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 The interim final rules currently expire on the later of the compliance dates for final rules we may adopt further defining the terms ‘‘security-based swap’’ and ‘‘eligible contract participant,’’ unless we take further action to modify the expiration dates in the interim final rules. In April 2012, we adopted final rules and interpretations further defining the term ‘‘eligible contract participant’’ and the compliance date of those rules and interpretations was July 23, 2012. In July 2012, we adopted final rules and interpretations further defining the term ‘‘security-based swap’’ and the compliance date of those rules and interpretations is February 11, 2013. See Further Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘Security- PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 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.9 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.’’ 10 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 so prior to the enactment of Title VII.11 We were concerned about disrupting the operation of the security-based swaps market until the compliance date for final rules that we may adopt further defining the terms ‘‘security-based swap’’ and ‘‘eligible contract participant.’’ 12 We recognized that until we further defined such terms, market participants may be uncertain as to how to comply with the registration requirements of the Securities Act applicable to securities transactions, the registration requirements of the Exchange Act applicable to classes of securities, and the indenture provisions of the Trust Indenture Act.13 We also needed additional time and market input to evaluate the implications for security-based swaps under the Securities Act, the Exchange Act, and the Trust Indenture Act as a Based Swap Agreement’’; Mixed Swaps; SecurityBased Swap Agreement Recordkeeping, Release No. 33–9338 (Jul. 18, 2012), 77 FR 48208 (Aug. 13, 2012). 9 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). 10 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. 11 See Interim Final Rules Adopting Release. 12 Id. 13 Id. See also footnote 10 above. E:\FR\FM\04FER1.SGM 04FER1 Federal Register / Vol. 78, No. 23 / Monday, February 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES result of the inclusion of the term ‘‘security-based swap’’ in the definition of ‘‘security.’’ 14 We understood from market participants that there were several types of trading platforms being used to effect transactions in securitybased swaps, including security-based swap agreements that became securitybased swaps on the Title VII effective date, that would likely register as security-based swap execution facilities (‘‘security-based SEFs’’) 15 and that the use of trading platforms to effect security-based swap transactions would continue after the Title VII effective date.16 We also understood from market participants that if parties continued to engage in the same type of trading activities after the Title VII effective date that they were engaging in prior to the Title VII effective date with respect to security-based swap agreements that became security-based swaps on the Title VII effective date, such activities could raise concerns about the availability of exemptions from the registration requirements of the Securities Act and the Exchange Act.17 Accordingly, at the time of adoption of the interim final rules in July 2011, we requested comment on various aspects of the interim final rules. In particular, we requested comment on the following:18 (i) Whether security-based 14 Id. 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. 15 A security-based swap execution facility is a trading system or platform in which multiple participants have the ability to execute or trade security-based swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce, including any trading facility, that facilitates the execution of security-based swaps between persons and is not a national securities exchange. See Section 3(a)(77) of the Exchange Act [15 U.S.C. 78c(a)(77)]. See also Section 3D of the Exchange Act [15 U.S.C. 78c–4] and Registration and Regulation of Security-Based Swap Execution Facilities, Release No. 34–63825 (Feb. 2, 2011), 76 FR 10948 (Feb. 28, 2011) (‘‘Security-Based SEF Proposing Release’’). 16 See Interim Final Rules Adopting Release. 17 Id. We received comments expressing concern regarding the implications of including securitybased swaps in the definition of ‘‘security.’’ Commentators indicated that they were still analyzing the full implications of such expansion of the definition of ‘‘security,’’ but that it would take time. Market participants requested temporary relief from certain provisions of the Securities Act and the Exchange Act so that parties could complete their analysis and submit requests for more targeted relief. Id. 18 Id. We also requested comment on these matters in an earlier proposing release regarding exemptions for security-based swap transactions involving an eligible clearing agency. See VerDate Mar<15>2010 16:02 Feb 01, 2013 Jkt 229001 swaps are transacted or expected to be transacted following the full implementation of Title VII in a manner that would not permit the parties to rely on existing exemptions under the Securities Act and the Exchange Act; and (ii) whether we should consider additional exemptions under the Securities Act and the Exchange Act for security-based swaps traded on a national securities exchange or through a security-based SEF with eligible contract participants.19 We received three comment letters from three commentators regarding the interim final rules.20 One commentator opposed any exemptions for securitybased swaps, including the exemptions provided in the interim final rules, but did not provide any explanation for the reason.21 The other commentators Exemptions For Security-Based Swaps Issued By Certain Clearing Agencies, Release No. 33–9222 (Jun. 9, 2011), 76 FR 34920 (Jun. 15, 2011) (‘‘Cleared SBS Exemptions Proposing Release’’). 19 The term ‘‘eligible contract participant’’ is defined in Section 1a(18) of the Commodity Exchange Act [7 U.S.C. 1a(18)]. The definitions of the term ‘‘eligible contract participant’’ in the Securities Act and the Exchange Act both refer to the definition of ‘‘eligible contract participant’’ in the Commodity Exchange Act. See Section 5(e) of the Securities Act [15 U.S.C. 77e(e)] and Section 3(a)(65) of the Exchange Act [15 U.S.C. 78c(a)(65)]. The eligible contract participant definition includes several categories of persons: financial institutions; insurance companies; investment companies; commodity pools; business entities, such as corporations, partnerships, and trusts; employee benefit plans; government entities, such as the United States, a State or local municipality, a foreign government, a multinational or supranational government entity, or an instrumentality, agency or department of such entities; market professionals, such as broker dealers, futures commission merchants, floor brokers, and investment advisors; and natural persons with a specified dollar amount invested on a discretionary basis. The SEC and the CFTC recently adopted final rules further defining the term ‘‘eligible contract participant.’’ The CFTC staff recently issued a letter, Staff Interpretations and No-Action Relief Regarding ECP Status: Swap Guarantee Arrangements; Jointly and Severally Liable Counterparties; Amounts Invested on a Discretionary Basis; and ‘‘Anticipatory ECPs,’’ CFTC Letter No. 12–17 (Oct. 12, 2012). Such letter does not interpret or further define the term ‘‘eligible contract participant’’ for purposes of Section 712(d) of the Dodd-Frank Act or the federal securities laws. See Further Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major Security-Based Swap Participant’’ and ‘‘Eligible Contract Participant’’, Release No. 34–66868 (Apr. 27, 2012), 77 FR 30596 (May 23, 2012). 20 See letter from Kenneth E. Bentsen, Jr., Executive Vice President, Public Policy and Advocacy, The Securities Industry and Financial Markets Association (‘‘SIFMA’’), dated December 21, 2012 (‘‘SIFMA Letter’’); letter from Kenneth E. Bentsen, Jr., Executive Vice President, Public Policy and Advocacy, SIFMA, and Robert Pickel, Chief Executive Officer, International Swaps and Derivatives Association (‘‘ISDA’’), dated Apr. 20, 2012 (‘‘SIFMA/ISDA Letter’’); and letter from Tom Nappi, dated Jul. 14, 2011 (‘‘Nappi Letter’’). 21 See Nappi Letter. PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 7655 supported the interim final rules.22 These commentators stated their view that the interim final rules were necessary and appropriate steps to prevent disruption of the security-based swaps market and to ensure the orderly implementation of Title VII.23 These commentators provided a description of the security-based swaps market as it currently functions and how it may function following the full implementation of Title VII.24 These commentators expressed concerns regarding the availability of exemptions from the registration requirements of the Securities Act for security-based swap transactions entered into solely between eligible contract participants due to the operation of security-based swap trading platforms and the publication or distribution of other information regarding security-based swaps.25 They indicated that certain communications involving security-based swaps, such as the publication or distribution of price quotes, may be available on or through trading platforms on an unrestricted basis, including following the full implementation of Title VII.26 They also indicated that security-based swap dealers publish and distribute research regarding security-based swap transactions that may be broadly disseminated and could be available on an unrestricted basis.27 They were concerned that unrestricted access to these communications could affect the availability of exemptions from the registration requirements of the Securities Act, such as the exemption in Section 4(a)(2), for security-based swap transactions entered into solely between eligible contract participants.28 Based on their concerns regarding the availability of exemptions from the registration requirements of the Securities Act, these commentators requested that we adopt permanent relief from the registration requirements of Section 5 of the Securities Act for offers and sales of security-based swaps 29 solely between eligible contract 22 See 23 See SIFMA Letter and SIFMA/ISDA Letter. SIFMA/ISDA Letter. 24 Id. 25 See SIFMA Letter and SIFMA/ISDA Letter. SIFMA/ISDA Letter. 27 See SIFMA Letter. 28 See SIFMA Letter and SIFMA/ISDA Letter. 29 The category of security-based swaps that would be covered by this request for relief is broader in some ways than the category of securitybased swaps covered by the exemptions provided in the interim final rules. As noted in footnote 6 above, the exemptions provided in the interim final rules apply to security-based swaps that were defined as ‘‘security-based swap agreements’’ prior to the Title VII effective date. That definition of ‘‘security-based swap agreement’’ does not include 26 See E:\FR\FM\04FER1.SGM Continued 04FER1 7656 Federal Register / Vol. 78, No. 23 / Monday, February 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES participants.30 These commentators also requested relief under the Exchange Act for offers and sales of security-based swaps solely between eligible contract participants.31 They were concerned that ambiguity regarding the definition of a ‘‘class’’ as applied to security-based swaps could raise concerns regarding the registration requirements of Section 12(g) of the Exchange Act.32 Finally, these commentators requested relief from Section 304(d) of the Trust Indenture Act for security-based swaps entered into solely between eligible contract participants.33 They believed that the protections of the Trust Indenture Act are not necessary in the context of such transactions because such transactions involve contracts between two counterparties who are capable of enforcing obligations under the security-based swaps directly.34 Moreover, although not submitted in connection with the interim final rules, we received two comment letters from four commentators regarding the proposed exemptions for security-based swap transactions involving an eligible clearing agency discussing issues arising with respect to security-based swap transactions not involving an eligible clearing agency.35 One commentator suggested that we provide permanent exemptions under the Securities Act, the Exchange Act, and the Trust Indenture Act for security-based swap transactions entered into between security-based swaps that are based on or reference only loans and indexes only of loans. 30 See SIFMA Letter and SIFMA/ISDA Letter. These commentators limited their request for relief to security-based swap transactions not involving an eligible clearing agency. Id. We recently adopted exemptions under the Securities Act, the Exchange Act, and the Trust Indenture Act for security-based swap transactions involving an eligible clearing agency. See Rule 239 under the Securities Act [17 CFR 230.239], Rules 12a–10 and 12h–1(h) under the Exchange Act [17 CFR 240.12a–10 and 240.12h– 1(h)], and Rule 4d–11 under the Trust Indenture Act of 1939 [17 CFR 260.4d–11]. See also Exemptions for Security-Based Swaps Issued By Certain Clearing Agencies, Release No. 33–9308 (Mar. 30, 2012), 77 FR 20536 (Apr. 5, 2012) (‘‘Cleared SBS Exemptions Adopting Release’’). These exemptions do not apply to security-based swap transactions not involving an eligible clearing agency, even if the security-based swaps subsequently are cleared in transactions involving an eligible clearing agency. Id. 31 See SIFMA/ISDA Letter. 32 Id. 33 Id. 34 Id. 35 See letter from Richard M. Whiting, Executive Director and General Counsel, Financial Services Roundtable, Robert Pickel, Chief Executive Officer, ISDA, and Kenneth E. Bentsen, Jr., Executive Vice President, Public Policy and Advocacy, SIFMA, dated Jan. 31, 2012 (‘‘FSR/ISDA/SIFMA Letter’’); and letter from Scott Pintoff, General Counsel, GFI Group Inc., dated Jul. 25, 2011 (‘‘GFI Letter’’). These letters were submitted in response to our request for comment in the Cleared SBS Exemptions Proposing Release. See footnote 18 above. VerDate Mar<15>2010 16:02 Feb 01, 2013 Jkt 229001 eligible contract participants and effected through any trading platform similar to the proposed exemptions for security-based swap transactions involving an eligible clearing agency.36 The other commentators suggested that we provide exemptions under Section 12(g) of the Exchange Act and the Trust Indenture Act for security-based swap transactions entered into solely between eligible contract participants similar to the proposed exemptions for securitybased swap transactions involving an eligible clearing agency.37 In adopting the exemptions for security-based swap transactions involving an eligible clearing agency, we indicated that these commentator’s suggestions were more appropriate to be considered in connection with the interim final rules.38 We are carefully considering the comments we have 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. We also are in the process of implementing the Title VII statutory provisions governing the registration and regulation of securitybased SEFs. We have proposed rules to implement these provisions,39 but the particular characteristics of trading platforms that security-based SEFs will be permitted to operate will not be known until we adopt final rules for security-based SEFs. We currently are evaluating the comments we received regarding these proposed rules, but we have not yet adopted final rules implementing the Title VII statutory provisions governing the registration and regulation of security-based SEFs. We also are evaluating such comments in connection with our consideration of the comments we have received on the interim final rules given commentators’ concerns regarding the operation of security-based swap trading platforms. We do not expect to complete our evaluation of the implications for 36 See GFI Letter. This commentator did not provide any explanation as to why such exemption was needed, including how security-based swap trading platforms operate, that would enable us to evaluate whether relief is necessary or appropriate. See Cleared SBS Exemptions Adopting Release. 37 See FSR/ISDA/SIFMA Letter. These commentators requested relief under the Exchange Act and the Trust Indenture Act, but did not request relief under the Securities Act. However, two of these commentators subsequently submitted the SIFMA Letter and the SIFMA/ISDA Letter to request relief under the Securities Act. See footnote 30 above and accompanying text. 38 See Cleared SBS Exemptions Adopting Release. 39 See Security-Based SEF Proposing Release. PO 00000 Frm 00016 Fmt 4700 Sfmt 4700 security-based swaps as securities, including our consideration of the comments we have received on the interim final rules, and implement any appropriate regulatory relief before February 11, 2013, the current expiration date of the interim final rules. If the interim final rules expire before we complete such evaluation, market participants entering into security-based swap transactions may need to register the offer and sale of the security-based swaps under the Securities Act. Market participants also 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 consider the comments we have received on the interim final rules likely would disrupt the operation of the security-based swaps market. Moreover, we have received a request from a commentator to extend the expiration dates in the interim final rules.40 This commentator stated its belief that key issues and questions regarding the application of the federal securities laws to securitybased swaps remain unresolved and, as a result, pending resolution of those issues and questions, all of the exemptions in the interim final rules are needed to avoid the potential for significant disruption in the securitybased swaps market.41 Thus, while we consider the comments we have received on 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 may not comply with the registration requirements of the Securities Act applicable to securities transactions, the registration requirements of the Exchange Act applicable to classes of securities, and the indenture provisions of 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 40 See letter from Kenneth E. Bentsen, Jr., Executive Vice President, Public Policy and Advocacy, SIFMA, dated December 20, 2012. This commentator requested that the Commission extend the expiration dates in the interim final rules to July 17, 2013. 41 Id. E:\FR\FM\04FER1.SGM 04FER1 Federal Register / Vol. 78, No. 23 / Monday, February 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES 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 limited time the interim final rules will be needed, and our consideration of comments we have received on the interim final rules, we have determined that it is necessary and appropriate to extend the expiration dates in the interim final rules to February 11, 2014.42 If we adopt further rules relating to issues raised by the application of the Securities Act and other federal securities laws to the security-based swaps market before February 11, 2014, 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. II. Certain Administrative Law Matters Section 553(b) of the Administrative Procedure Act 43 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.’’ 44 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.45 This requirement does not apply, however, if the agency finds good cause for making the rule effective sooner.46 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 42 The Cleary Gottlieb No-Action Letter will remain in effect for so long as the interim final rules remain in effect. See footnote 6 above. 43 5 U.S.C. 553(b). 44 Id. 45 See 5 U.S.C. 553(d). 46 Id. VerDate Mar<15>2010 16:02 Feb 01, 2013 Jkt 229001 rules is intended to minimize disruptions and costs to the securitybased swaps market that could 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 while we consider the comments we have received on the interim final rules. As noted above, we sought and received comments on the interim final rules.47 Although one commentator did not support the interim final rules, this commentator did not provide any explanation for the reason. The other commentators supported the interim final rules and stated their view that the interim final rules were necessary and appropriate steps to prevent disruption of the security-based swaps market and to ensure the orderly implementation of Title VII. These commentators provided detailed responses to our requests for comment on the interim final rules and expressed concerns regarding the treatment of certain communications involving security-based swaps under the Securities Act. These commentators also stated their view that permanent relief was needed for security-based swap transactions and requested that we adopt permanent exemptions under the Securities Act, the Exchange Act, and the Trust Indenture Act, similar to the exemptions provided in the interim final rules, for security-based swap transactions entered into solely between eligible contract participants. We also received comments on the proposed exemptions for security-based swap transactions involving an eligible clearing agency that were responsive to the request for comment on the interim final rules.48 We are carefully considering all of these comments as we evaluate the implications for securitybased swaps resulting from the inclusion of the term ‘‘security-based swap’’ in the definition of ‘‘security’’ under the Securities Act and the Exchange Act. Moreover, we are in the process of implementing the Title VII statutory provisions governing the registration and regulation of security-based SEFs. As noted above, we have proposed rules to implement these provisions, but the 47See footnotes 18 and 20 above and accompanying text. 48See footnote 35 above and accompanying text. PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 7657 particular characteristics of trading platforms that security-based SEFs will be permitted to operate will not be known until we adopt final rules for security-based SEFs. We currently are evaluating the comments we received regarding these proposed rules, but we have not yet adopted final rules implementing the Title VII statutory provisions governing the registration and regulation of security-based SEFs. We also are evaluating such comments in connection with our consideration of the comments we have received on the interim final rules given commentators’ concerns regarding the operation of security-based swap trading platforms. However, we may not complete our evaluation of the comments we have received on the interim final rules or our evaluation of the comments received and our rulemaking relating to the implementation of the Title VII statutory provisions governing the registration and regulation of securitybased SEFs before February 11, 2013, the current expiration date of the interim final rules. Absent an extension, the interim final rules will expire on February 11, 2013. 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. Extending the expiration dates in the interim final rules will allow market participants that meet the conditions of the interim final rules to continue to enter into securitybased 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 consider the comments we have received on the interim final rules. 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 and contrary to the public interest.49 49 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 E:\FR\FM\04FER1.SGM Continued 04FER1 7658 Federal Register / Vol. 78, No. 23 / Monday, February 4, 2013 / Rules and Regulations mstockstill on DSK4VPTVN1PROD with RULES III. Economic Analysis In July 2011, we adopted the interim final rules to provide exemptions under the Securities Act, the Exchange Act, and the Trust Indenture Act for those security-based swaps that prior to the Title VII effective date were securitybased 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. In this release, we are adopting amendments to the interim final rules to extend the expiration dates in the interim final rules. Extending the expiration dates in the interim final rules is intended to minimize disruptions and costs to the security-based swaps market that could 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 while we consider the comments we have received on the interim final rules. We are sensitive to the costs and benefits imposed by our rules. The discussion below attempts to address the amendments to the interim final rules extending the expiration dates in the interim final rules, including the costs and benefits of the amendments as well as the effect of the amendments on efficiency, competition, and capital formation.50 Absent the extension of the expiration dates in the interim final rules, the offer and sale of those security-based swaps that prior to the Title VII effective date were defined as security-based swap agreements may have to be registered under the Securities Act, certain of those security-based swaps may have to be registered as a class under the Exchange Act, and the indenture effect at such time as the Federal agency promulgating the rule determines’’). 50 Section 23(a)(2) of the Exchange Act requires us, when adopting rules under the Exchange Act, to consider the impact that any new rule would have on competition. See 15 U.S.C. 78w(a)(2). Section 23(a)(2) prohibits us from adopting any rule that would impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. Id. In addition, Section 2(b) of the Securities Act and Section 3(f) of the Exchange Act require us, when engaging in rulemaking where we are required to consider or determine whether an action is necessary or appropriate in the public interest, to also consider whether the action will promote efficiency, competition, and capital formation. See 15 U.S.C. 77b(b) and 15 U.S.C. 78c(f). VerDate Mar<15>2010 16:02 Feb 01, 2013 Jkt 229001 provisions of the Trust Indenture Act may need to be complied with. We believe that requiring compliance with these provisions at this time for security-based swap transactions between eligible contract participants likely would disrupt and impose unnecessary costs on this segment of the security-based swaps market.51 We also believe that because security-based swap transactions that qualify for the exemptions under the interim final rules generally involve individualized negotiations, extending the expiration date of such exemptions is not likely to impose a substantial informational cost on the market participants involved in such transactions. Further, absent the action we are taking in this release, we believe that certain market participants could incur additional costs due to compliance with the registration requirements of the Securities Act and the Exchange Act, as well as compliance with the provisions of the Trust Indenture Act. It also is possible that without the extension of the expiration dates in the interim final rules, a market participant may not continue to participate in these types of transactions if compliance with these provisions were infeasible (economically or otherwise). Not extending the expiration dates in the interim final rules could cause disruptions in the security-based swaps market. Therefore, we believe that extending the expiration dates in the interim final rules provides important benefits to market participants in the security-based swaps market. Because the extension of the expiration dates in the interim final rules would maintain the status quo with respect to the ability of market participants to engage in transactions in those security-based swaps that prior to the Title VII effective date were defined as security-based swap agreements, we do not believe that our actions in this release will have an impact on the current state of competition. We also believe that the extension of the expiration dates in the interim final rules will promote efficiency by minimizing disruptions and costs to the security-based swaps market that could occur on the current expiration date of 51 If market participants are not required to register the offer and sale of these security-based swaps, they will not have to incur the additional costs of such registration, including legal and accounting costs. The availability of the exemptions under the Securities Act, the Exchange Act, and the Trust Indenture Act also would mean that market participants would not incur the costs of preparing disclosure documents describing these securitybased swaps and would not incur the costs of preparing indentures and arranging for the services of a trustee. PO 00000 Frm 00018 Fmt 4700 Sfmt 4700 the interim final rules. To the extent that those security-based swaps that prior to the Title VII effective date were defined as security-based swap agreements are used to hedge risks, including those related to the issuance of the referenced securities (as occurs with equity swaps and the issuance of convertible bonds, for example), the extension of the expiration dates in the interim final rules will prevent potential impairment of the capital formation process. For example, if registration of these transactions is required under our existing Securities Act registration scheme, this might result in the issuers of security-based swaps providing disclosure regarding 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 affect capital formation to the extent counterparties might use security-based swaps for hedging their exposure to issuers of referenced securities. We recognize that a consequence of extending the expiration dates in the interim final rules will be the unavailability of certain remedies under the Securities Act and the Exchange Act and certain protections under the Trust Indenture Act for an interim period to the extent that any of these securitybased swap transactions otherwise would be subject to the registration requirements of the Securities Act and the Exchange Act. Absent the extension of the expiration dates 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, which would provide investors with civil remedies in addition to antifraud remedies, and may have to satisfy the applicable provisions of the Trust Indenture Act. A registration statement covering the offer and sale of 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. As a result of the extension of the expiration dates in the interim final rules, while an investor would be able to pursue an antifraud action in connection with the purchase and sale of security-based swaps under Section 10(b) of the Exchange Act, it would not be able to pursue civil remedies under Sections 11 or 12 of the Securities Act. The Commission could E:\FR\FM\04FER1.SGM 04FER1 Federal Register / Vol. 78, No. 23 / Monday, February 4, 2013 / Rules and Regulations not have a significant economic impact on a substantial number of small entities. still pursue an antifraud action in the offer and sale of security-based swaps under Section 17(a) of the Securities Act. 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’’),52 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.53 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.54 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 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 participants in the securitybased 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.55 For this reason, the extension of the expiration dates in the interim final rules should 52 44 U.S.C. 3501 et seq. U.S.C. 3507(d) and 5 CFR 1320.11. 54 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. 55 For example, as revealed in a current survey conducted by Office of the Comptroller of the Currency, 100.0% of credit default swap positions held by U.S. commercial banks and trust companies are held by those with assets over $10 billion. See Office of the Comptroller of the Currency, ‘‘Quarterly Report on Bank Trading and Derivatives Activities Third Quarter 2012’’ (2012). mstockstill on DSK4VPTVN1PROD with RULES 53 44 VerDate Mar<15>2010 16:02 Feb 01, 2013 Jkt 229001 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. 7659 both the terms security-based swap and eligible contract participant’’ and add, in their place, the words ‘‘February 11, 2014’’. § 240.12h–1 [Amended] 5. In § 240.12h–1(i), in the second sentence, remove the words ‘‘the compliance date for final rules that the Commission may adopt further defining both the terms security-based swap and eligible contract participant’’ and add, in their place, the words ‘‘February 11, 2014’’. ■ PART 260—GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF 1939 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: Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss, 78ll(d), 80b–3, 80b–4, and 80b–11. 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, 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, unless otherwise noted. * * § 230.240 * * * [Amended] 6. The authority citation for Part 260 continues to read as follows: * * * § 260.4d–12 * * [Amended] 7. In § 260.4d–12, in the second sentence, remove the words ‘‘the compliance date for final rules that the Commission may adopt further defining both the terms security-based swap and eligible contract participant’’ and add, in their place, the words ‘‘February 11, 2014’’. ■ By the Commission. Dated: January 29, 2013. Elizabeth M. Murphy, Secretary. 2. In § 230.240(c), in the first sentence, remove the words ‘‘the compliance date for final rules that the Commission may adopt further defining both the terms security-based swap and eligible contract participant’’ and add, in their place, the words ‘‘February 11, 2014’’. [FR Doc. 2013–02191 Filed 2–1–13; 8:45 am] PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 [Docket No. SSA–2009–0039] ■ 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, and 7201 et seq., 12 U.S.C. 5221(e)(3), 15 U.S.C. 8302, and 18 U.S.C. 1350, unless otherwise noted. * * * § 240.12a–11 * * [Amended] 4. In § 240.12a–11(b), in the first sentence, remove the words ‘‘the compliance date for final rules that the Commission may adopt further defining ■ PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 BILLING CODE 8011–01–P SOCIAL SECURITY ADMINISTRATION 20 CFR Part 404 RIN 0960–AH04 Revised Medical Criteria for Evaluating Congenital Disorders That Affect Multiple Body Systems Social Security Administration. Final rule. AGENCY: ACTION: We are revising the criteria in the Listing of Impairments (listings) that we use to evaluate cases involving impairments that affect multiple body systems in adults and children under titles II and XVI of the Social Security Act (Act). The revisions reflect our program experience and address adjudicator questions we have received since we last comprehensively revised this body system in 2005. We do not expect any decisional differences due to the revisions in this body system. SUMMARY: E:\FR\FM\04FER1.SGM 04FER1

Agencies

[Federal Register Volume 78, Number 23 (Monday, February 4, 2013)]
[Rules and Regulations]
[Pages 7654-7659]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-02191]



[[Page 7654]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 240 and 260

[Release Nos. 33-9383; 34-68753; 39-2489; File No. S7-26-11]
RIN 3235-AL17


Extension of Exemptions for Security-Based Swaps

AGENCY:  Securities and Exchange Commission.

ACTION: Interim final rule; extension.

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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 extended to February 11, 2014.

DATES:  The amendments are effective February 4, 2013. 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\
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    \1\ 15 U.S.C. 77a et seq.
    \2\ 15 U.S.C. 78a et seq.
    \3\ 15 U.S.C. 77aaa et seq.
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I. Amendment of Expiration Dates in 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\ The interim 
final rules currently expire on February 11, 2013.\8\
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    \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) (``Cleary 
Gottlieb No-Action Letter''). 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\ The interim final rules currently expire on the later of the 
compliance dates for final rules we may adopt further defining the 
terms ``security-based swap'' and ``eligible contract participant,'' 
unless we take further action to modify the expiration dates in the 
interim final rules. In April 2012, we adopted final rules and 
interpretations further defining the term ``eligible contract 
participant'' and the compliance date of those rules and 
interpretations was July 23, 2012. In July 2012, we adopted final 
rules and interpretations further defining the term ``security-based 
swap'' and the compliance date of those rules and interpretations is 
February 11, 2013. See Further Definition of ``Swap,'' ``Security-
Based Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps; 
Security-Based Swap Agreement Recordkeeping, Release No. 33-9338 
(Jul. 18, 2012), 77 FR 48208 (Aug. 13, 2012).
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    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.\9\ 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.'' \10\ 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 so prior to 
the enactment of Title VII.\11\ We were concerned about disrupting the 
operation of the security-based swaps market until the compliance date 
for final rules that we may adopt further defining the terms 
``security-based swap'' and ``eligible contract participant.'' \12\ We 
recognized that until we further defined such terms, market 
participants may be uncertain as to how to comply with the registration 
requirements of the Securities Act applicable to securities 
transactions, the registration requirements of the Exchange Act 
applicable to classes of securities, and the indenture provisions of 
the Trust Indenture Act.\13\
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    \9\ 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).
    \10\ 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.
    \11\ See Interim Final Rules Adopting Release.
    \12\ Id.
    \13\ Id. See also footnote 10 above.
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    We also needed additional time and market input to evaluate the 
implications for security-based swaps under the Securities Act, the 
Exchange Act, and the Trust Indenture Act as a

[[Page 7655]]

result of the inclusion of the term ``security-based swap'' in the 
definition of ``security.'' \14\ We understood from market participants 
that there were several types of trading platforms being used to effect 
transactions in security-based swaps, including security-based swap 
agreements that became security-based swaps on the Title VII effective 
date, that would likely register as security-based swap execution 
facilities (``security-based SEFs'') \15\ and that the use of trading 
platforms to effect security-based swap transactions would continue 
after the Title VII effective date.\16\ We also understood from market 
participants that if parties continued to engage in the same type of 
trading activities after the Title VII effective date that they were 
engaging in prior to the Title VII effective date with respect to 
security-based swap agreements that became security-based swaps on the 
Title VII effective date, such activities could raise concerns about 
the availability of exemptions from the registration requirements of 
the Securities Act and the Exchange Act.\17\ Accordingly, at the time 
of adoption of the interim final rules in July 2011, we requested 
comment on various aspects of the interim final rules. In particular, 
we requested comment on the following:\18\ (i) Whether security-based 
swaps are transacted or expected to be transacted following the full 
implementation of Title VII in a manner that would not permit the 
parties to rely on existing exemptions under the Securities Act and the 
Exchange Act; and (ii) whether we should consider additional exemptions 
under the Securities Act and the Exchange Act for security-based swaps 
traded on a national securities exchange or through a security-based 
SEF with eligible contract participants.\19\
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    \14\ 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.
    \15\ A security-based swap execution facility is a trading 
system or platform in which multiple participants have the ability 
to execute or trade security-based swaps by accepting bids and 
offers made by multiple participants in the facility or system, 
through any means of interstate commerce, including any trading 
facility, that facilitates the execution of security-based swaps 
between persons and is not a national securities exchange. See 
Section 3(a)(77) of the Exchange Act [15 U.S.C. 78c(a)(77)]. See 
also Section 3D of the Exchange Act [15 U.S.C. 78c-4] and 
Registration and Regulation of Security-Based Swap Execution 
Facilities, Release No. 34-63825 (Feb. 2, 2011), 76 FR 10948 (Feb. 
28, 2011) (``Security-Based SEF Proposing Release'').
    \16\ See Interim Final Rules Adopting Release.
    \17\ Id. We received comments expressing concern regarding the 
implications of including security-based swaps in the definition of 
``security.'' Commentators indicated that they were still analyzing 
the full implications of such expansion of the definition of 
``security,'' but that it would take time. Market participants 
requested temporary relief from certain provisions of the Securities 
Act and the Exchange Act so that parties could complete their 
analysis and submit requests for more targeted relief. Id.
    \18\ Id. We also requested comment on 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) (``Cleared SBS Exemptions Proposing Release'').
    \19\ The term ``eligible contract participant'' is defined in 
Section 1a(18) of the Commodity Exchange Act [7 U.S.C. 1a(18)]. The 
definitions of the term ``eligible contract participant'' in the 
Securities Act and the Exchange Act both refer to the definition of 
``eligible contract participant'' in the Commodity Exchange Act. See 
Section 5(e) of the Securities Act [15 U.S.C. 77e(e)] and Section 
3(a)(65) of the Exchange Act [15 U.S.C. 78c(a)(65)]. The eligible 
contract participant definition includes several categories of 
persons: financial institutions; insurance companies; investment 
companies; commodity pools; business entities, such as corporations, 
partnerships, and trusts; employee benefit plans; government 
entities, such as the United States, a State or local municipality, 
a foreign government, a multinational or supranational government 
entity, or an instrumentality, agency or department of such 
entities; market professionals, such as broker dealers, futures 
commission merchants, floor brokers, and investment advisors; and 
natural persons with a specified dollar amount invested on a 
discretionary basis. The SEC and the CFTC recently adopted final 
rules further defining the term ``eligible contract participant.'' 
The CFTC staff recently issued a letter, Staff Interpretations and 
No-Action Relief Regarding ECP Status: Swap Guarantee Arrangements; 
Jointly and Severally Liable Counterparties; Amounts Invested on a 
Discretionary Basis; and ``Anticipatory ECPs,'' CFTC Letter No. 12-
17 (Oct. 12, 2012). Such letter does not interpret or further define 
the term ``eligible contract participant'' for purposes of Section 
712(d) of the Dodd-Frank Act or the federal securities laws. See 
Further Definition of ``Swap Dealer,'' ``Security-Based Swap 
Dealer,'' ``Major Swap Participant,'' ``Major Security-Based Swap 
Participant'' and ``Eligible Contract Participant'', Release No. 34-
66868 (Apr. 27, 2012), 77 FR 30596 (May 23, 2012).
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    We received three comment letters from three commentators regarding 
the interim final rules.\20\ One commentator opposed any exemptions for 
security-based swaps, including the exemptions provided in the interim 
final rules, but did not provide any explanation for the reason.\21\ 
The other commentators supported the interim final rules.\22\ These 
commentators stated their view that the interim final rules were 
necessary and appropriate steps to prevent disruption of the security-
based swaps market and to ensure the orderly implementation of Title 
VII.\23\ These commentators provided a description of the security-
based swaps market as it currently functions and how it may function 
following the full implementation of Title VII.\24\ These commentators 
expressed concerns regarding the availability of exemptions from the 
registration requirements of the Securities Act for security-based swap 
transactions entered into solely between eligible contract participants 
due to the operation of security-based swap trading platforms and the 
publication or distribution of other information regarding security-
based swaps.\25\ They indicated that certain communications involving 
security-based swaps, such as the publication or distribution of price 
quotes, may be available on or through trading platforms on an 
unrestricted basis, including following the full implementation of 
Title VII.\26\ They also indicated that security-based swap dealers 
publish and distribute research regarding security-based swap 
transactions that may be broadly disseminated and could be available on 
an unrestricted basis.\27\ They were concerned that unrestricted access 
to these communications could affect the availability of exemptions 
from the registration requirements of the Securities Act, such as the 
exemption in Section 4(a)(2), for security-based swap transactions 
entered into solely between eligible contract participants.\28\ Based 
on their concerns regarding the availability of exemptions from the 
registration requirements of the Securities Act, these commentators 
requested that we adopt permanent relief from the registration 
requirements of Section 5 of the Securities Act for offers and sales of 
security-based swaps \29\ solely between eligible contract

[[Page 7656]]

participants.\30\ These commentators also requested relief under the 
Exchange Act for offers and sales of security-based swaps solely 
between eligible contract participants.\31\ They were concerned that 
ambiguity regarding the definition of a ``class'' as applied to 
security-based swaps could raise concerns regarding the registration 
requirements of Section 12(g) of the Exchange Act.\32\ Finally, these 
commentators requested relief from Section 304(d) of the Trust 
Indenture Act for security-based swaps entered into solely between 
eligible contract participants.\33\ They believed that the protections 
of the Trust Indenture Act are not necessary in the context of such 
transactions because such transactions involve contracts between two 
counterparties who are capable of enforcing obligations under the 
security-based swaps directly.\34\
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    \20\ See letter from Kenneth E. Bentsen, Jr., Executive Vice 
President, Public Policy and Advocacy, The Securities Industry and 
Financial Markets Association (``SIFMA''), dated December 21, 2012 
(``SIFMA Letter''); letter from Kenneth E. Bentsen, Jr., Executive 
Vice President, Public Policy and Advocacy, SIFMA, and Robert 
Pickel, Chief Executive Officer, International Swaps and Derivatives 
Association (``ISDA''), dated Apr. 20, 2012 (``SIFMA/ISDA Letter''); 
and letter from Tom Nappi, dated Jul. 14, 2011 (``Nappi Letter'').
    \21\ See Nappi Letter.
    \22\ See SIFMA Letter and SIFMA/ISDA Letter.
    \23\ See SIFMA/ISDA Letter.
    \24\ Id.
    \25\ See SIFMA Letter and SIFMA/ISDA Letter.
    \26\ See SIFMA/ISDA Letter.
    \27\ See SIFMA Letter.
    \28\ See SIFMA Letter and SIFMA/ISDA Letter.
    \29\ The category of security-based swaps that would be covered 
by this request for relief is broader in some ways than the category 
of security-based swaps covered by the exemptions provided in the 
interim final rules. As noted in footnote 6 above, the exemptions 
provided in the interim final rules apply to security-based swaps 
that were defined as ``security-based swap agreements'' prior to the 
Title VII effective date. 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.
    \30\ See SIFMA Letter and SIFMA/ISDA Letter. These commentators 
limited their request for relief to security-based swap transactions 
not involving an eligible clearing agency. Id. We recently adopted 
exemptions under the Securities Act, the Exchange Act, and the Trust 
Indenture Act for security-based swap transactions involving an 
eligible clearing agency. See Rule 239 under the Securities Act [17 
CFR 230.239], Rules 12a-10 and 12h-1(h) under the Exchange Act [17 
CFR 240.12a-10 and 240.12h-1(h)], and Rule 4d-11 under the Trust 
Indenture Act of 1939 [17 CFR 260.4d-11]. See also Exemptions for 
Security-Based Swaps Issued By Certain Clearing Agencies, Release 
No. 33-9308 (Mar. 30, 2012), 77 FR 20536 (Apr. 5, 2012) (``Cleared 
SBS Exemptions Adopting Release''). These exemptions do not apply to 
security-based swap transactions not involving an eligible clearing 
agency, even if the security-based swaps subsequently are cleared in 
transactions involving an eligible clearing agency. Id.
    \31\ See SIFMA/ISDA Letter.
    \32\ Id.
    \33\ Id.
    \34\ Id.
---------------------------------------------------------------------------

    Moreover, although not submitted in connection with the interim 
final rules, we received two comment letters from four commentators 
regarding the proposed exemptions for security-based swap transactions 
involving an eligible clearing agency discussing issues arising with 
respect to security-based swap transactions not involving an eligible 
clearing agency.\35\ One commentator suggested that we provide 
permanent exemptions under the Securities Act, the Exchange Act, and 
the Trust Indenture Act for security-based swap transactions entered 
into between eligible contract participants and effected through any 
trading platform similar to the proposed exemptions for security-based 
swap transactions involving an eligible clearing agency.\36\ The other 
commentators suggested that we provide exemptions under Section 12(g) 
of the Exchange Act and the Trust Indenture Act for security-based swap 
transactions entered into solely between eligible contract participants 
similar to the proposed exemptions for security-based swap transactions 
involving an eligible clearing agency.\37\ In adopting the exemptions 
for security-based swap transactions involving an eligible clearing 
agency, we indicated that these commentator's suggestions were more 
appropriate to be considered in connection with the interim final 
rules.\38\
---------------------------------------------------------------------------

    \35\ See letter from Richard M. Whiting, Executive Director and 
General Counsel, Financial Services Roundtable, Robert Pickel, Chief 
Executive Officer, ISDA, and Kenneth E. Bentsen, Jr., Executive Vice 
President, Public Policy and Advocacy, SIFMA, dated Jan. 31, 2012 
(``FSR/ISDA/SIFMA Letter''); and letter from Scott Pintoff, General 
Counsel, GFI Group Inc., dated Jul. 25, 2011 (``GFI Letter''). These 
letters were submitted in response to our request for comment in the 
Cleared SBS Exemptions Proposing Release. See footnote 18 above.
    \36\ See GFI Letter. This commentator did not provide any 
explanation as to why such exemption was needed, including how 
security-based swap trading platforms operate, that would enable us 
to evaluate whether relief is necessary or appropriate. See Cleared 
SBS Exemptions Adopting Release.
    \37\ See FSR/ISDA/SIFMA Letter. These commentators requested 
relief under the Exchange Act and the Trust Indenture Act, but did 
not request relief under the Securities Act. However, two of these 
commentators subsequently submitted the SIFMA Letter and the SIFMA/
ISDA Letter to request relief under the Securities Act. See footnote 
30 above and accompanying text.
    \38\ See Cleared SBS Exemptions Adopting Release.
---------------------------------------------------------------------------

    We are carefully considering the comments we have 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. We also are in the process of 
implementing the Title VII statutory provisions governing the 
registration and regulation of security-based SEFs. We have proposed 
rules to implement these provisions,\39\ but the particular 
characteristics of trading platforms that security-based SEFs will be 
permitted to operate will not be known until we adopt final rules for 
security-based SEFs. We currently are evaluating the comments we 
received regarding these proposed rules, but we have not yet adopted 
final rules implementing the Title VII statutory provisions governing 
the registration and regulation of security-based SEFs. We also are 
evaluating such comments in connection with our consideration of the 
comments we have received on the interim final rules given 
commentators' concerns regarding the operation of security-based swap 
trading platforms.
---------------------------------------------------------------------------

    \39\ See Security-Based SEF Proposing Release.
---------------------------------------------------------------------------

    We do not expect to complete our evaluation of the implications for 
security-based swaps as securities, including our consideration of the 
comments we have received on the interim final rules, and implement any 
appropriate regulatory relief before February 11, 2013, the current 
expiration date of the interim final rules. If the interim final rules 
expire before we complete such evaluation, market participants entering 
into security-based swap transactions may need to register the offer 
and sale of the security-based swaps under the Securities Act. Market 
participants also 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 consider the 
comments we have received on the interim final rules likely would 
disrupt the operation of the security-based swaps market. Moreover, we 
have received a request from a commentator to extend the expiration 
dates in the interim final rules.\40\ This commentator stated its 
belief that key issues and questions regarding the application of the 
federal securities laws to security-based swaps remain unresolved and, 
as a result, pending resolution of those issues and questions, all of 
the exemptions in the interim final rules are needed to avoid the 
potential for significant disruption in the security-based swaps 
market.\41\ Thus, while we consider the comments we have received on 
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 may not comply with the registration 
requirements of the Securities Act applicable to securities 
transactions, the registration requirements of the Exchange Act 
applicable to classes of securities, and the indenture provisions of 
the Trust Indenture Act.
---------------------------------------------------------------------------

    \40\ See letter from Kenneth E. Bentsen, Jr., Executive Vice 
President, Public Policy and Advocacy, SIFMA, dated December 20, 
2012. This commentator requested that the Commission extend the 
expiration dates in the interim final rules to July 17, 2013.
    \41\ Id.
---------------------------------------------------------------------------

    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

[[Page 7657]]

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 limited time the 
interim final rules will be needed, and our consideration of comments 
we have received on the interim final rules, we have determined that it 
is necessary and appropriate to extend the expiration dates in the 
interim final rules to February 11, 2014.\42\ If we adopt further rules 
relating to issues raised by the application of the Securities Act and 
other federal securities laws to the security-based swaps market before 
February 11, 2014, 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.
---------------------------------------------------------------------------

    \42\ The Cleary Gottlieb No-Action Letter will remain in effect 
for so long as the interim final rules remain in effect. See 
footnote 6 above.
---------------------------------------------------------------------------

II. Certain Administrative Law Matters

    Section 553(b) of the Administrative Procedure Act \43\ 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.'' \44\ 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.\45\ This 
requirement does not apply, however, if the agency finds good cause for 
making the rule effective sooner.\46\ 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.
---------------------------------------------------------------------------

    \43\ 5 U.S.C. 553(b).
    \44\ Id.
    \45\ See 5 U.S.C. 553(d).
    \46\ Id.
---------------------------------------------------------------------------

    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 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 while we consider 
the comments we have received on the interim final rules.
    As noted above, we sought and received comments on the interim 
final rules.\47\ Although one commentator did not support the interim 
final rules, this commentator did not provide any explanation for the 
reason. The other commentators supported the interim final rules and 
stated their view that the interim final rules were necessary and 
appropriate steps to prevent disruption of the security-based swaps 
market and to ensure the orderly implementation of Title VII. These 
commentators provided detailed responses to our requests for comment on 
the interim final rules and expressed concerns regarding the treatment 
of certain communications involving security-based swaps under the 
Securities Act. These commentators also stated their view that 
permanent relief was needed for security-based swap transactions and 
requested that we adopt permanent exemptions under the Securities Act, 
the Exchange Act, and the Trust Indenture Act, similar to the 
exemptions provided in the interim final rules, for security-based swap 
transactions entered into solely between eligible contract 
participants. We also received comments on the proposed exemptions for 
security-based swap transactions involving an eligible clearing agency 
that were responsive to the request for comment on the interim final 
rules.\48\ We are carefully considering all of these comments as we 
evaluate 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.
---------------------------------------------------------------------------

    \47\See footnotes 18 and 20 above and accompanying text.
    \48\See footnote 35 above and accompanying text.
---------------------------------------------------------------------------

    Moreover, we are in the process of implementing the Title VII 
statutory provisions governing the registration and regulation of 
security-based SEFs. As noted above, we have proposed rules to 
implement these provisions, but the particular characteristics of 
trading platforms that security-based SEFs will be permitted to operate 
will not be known until we adopt final rules for security-based SEFs. 
We currently are evaluating the comments we received regarding these 
proposed rules, but we have not yet adopted final rules implementing 
the Title VII statutory provisions governing the registration and 
regulation of security-based SEFs. We also are evaluating such comments 
in connection with our consideration of the comments we have received 
on the interim final rules given commentators' concerns regarding the 
operation of security-based swap trading platforms. However, we may not 
complete our evaluation of the comments we have received on the interim 
final rules or our evaluation of the comments received and our 
rulemaking relating to the implementation of the Title VII statutory 
provisions governing the registration and regulation of security-based 
SEFs before February 11, 2013, the current expiration date of the 
interim final rules.
    Absent an extension, the interim final rules will expire on 
February 11, 2013. 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. Extending the expiration dates in the interim 
final rules 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 consider the comments we have received on the interim 
final rules. 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 and contrary to the public interest.\49\
---------------------------------------------------------------------------

    \49\ 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'').

---------------------------------------------------------------------------

[[Page 7658]]

III. Economic Analysis

    In July 2011, we adopted the interim final rules to provide 
exemptions under the Securities Act, the Exchange Act, and the Trust 
Indenture Act for those security-based swaps that prior to the 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. 
In this release, we are adopting amendments to the interim final rules 
to extend the expiration dates in the interim final rules. Extending 
the expiration dates in the interim final rules is intended to minimize 
disruptions and costs to the security-based swaps market that could 
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 while we consider the comments we have received on 
the interim final rules.
    We are sensitive to the costs and benefits imposed by our rules. 
The discussion below attempts to address the amendments to the interim 
final rules extending the expiration dates in the interim final rules, 
including the costs and benefits of the amendments as well as the 
effect of the amendments on efficiency, competition, and capital 
formation.\50\
---------------------------------------------------------------------------

    \50\ Section 23(a)(2) of the Exchange Act requires us, when 
adopting rules under the Exchange Act, to consider the impact that 
any new rule would have on competition. See 15 U.S.C. 78w(a)(2). 
Section 23(a)(2) prohibits us from adopting any rule that would 
impose a burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Exchange Act. Id. In addition, 
Section 2(b) of the Securities Act and Section 3(f) of the Exchange 
Act require us, when engaging in rulemaking where we are required to 
consider or determine whether an action is necessary or appropriate 
in the public interest, to also consider whether the action will 
promote efficiency, competition, and capital formation. See 15 
U.S.C. 77b(b) and 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    Absent the extension of the expiration dates in the interim final 
rules, the offer and sale of those security-based swaps that prior to 
the Title VII effective date were defined as security-based swap 
agreements may have to be registered under the Securities Act, certain 
of those security-based swaps may have to be registered as a class 
under the Exchange Act, and the indenture provisions of the Trust 
Indenture Act may need to be complied with. We believe that requiring 
compliance with these provisions at this time for security-based swap 
transactions between eligible contract participants likely would 
disrupt and impose unnecessary costs on this segment of the security-
based swaps market.\51\ We also believe that because security-based 
swap transactions that qualify for the exemptions under the interim 
final rules generally involve individualized negotiations, extending 
the expiration date of such exemptions is not likely to impose a 
substantial informational cost on the market participants involved in 
such transactions. Further, absent the action we are taking in this 
release, we believe that certain market participants could incur 
additional costs due to compliance with the registration requirements 
of the Securities Act and the Exchange Act, as well as compliance with 
the provisions of the Trust Indenture Act. It also is possible that 
without the extension of the expiration dates in the interim final 
rules, a market participant may not continue to participate in these 
types of transactions if compliance with these provisions were 
infeasible (economically or otherwise). Not extending the expiration 
dates in the interim final rules could cause disruptions in the 
security-based swaps market. Therefore, we believe that extending the 
expiration dates in the interim final rules provides important benefits 
to market participants in the security-based swaps market.
---------------------------------------------------------------------------

    \51\ If market participants are not required to register the 
offer and sale of these security-based swaps, they will not have to 
incur the additional costs of such registration, including legal and 
accounting costs. The availability of the exemptions under the 
Securities Act, the Exchange Act, and the Trust Indenture Act also 
would mean that market participants would not incur the costs of 
preparing disclosure documents describing these security-based swaps 
and would not incur the costs of preparing indentures and arranging 
for the services of a trustee.
---------------------------------------------------------------------------

    Because the extension of the expiration dates in the interim final 
rules would maintain the status quo with respect to the ability of 
market participants to engage in transactions in those security-based 
swaps that prior to the Title VII effective date were defined as 
security-based swap agreements, we do not believe that our actions in 
this release will have an impact on the current state of competition. 
We also believe that the extension of the expiration dates in the 
interim final rules will promote efficiency by minimizing disruptions 
and costs to the security-based swaps market that could occur on the 
current expiration date of the interim final rules. To the extent that 
those security-based swaps that prior to the Title VII effective date 
were defined as security-based swap agreements are used to hedge risks, 
including those related to the issuance of the referenced securities 
(as occurs with equity swaps and the issuance of convertible bonds, for 
example), the extension of the expiration dates in the interim final 
rules will prevent potential impairment of the capital formation 
process. For example, if registration of these transactions is required 
under our existing Securities Act registration scheme, this might 
result in the issuers of security-based swaps providing disclosure 
regarding 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 affect capital formation to the extent 
counterparties might use security-based swaps for hedging their 
exposure to issuers of referenced securities.
    We recognize that a consequence of extending the expiration dates 
in the interim final rules will be the unavailability of certain 
remedies under the Securities Act and the Exchange Act and certain 
protections under the Trust Indenture Act for an interim period to the 
extent that any of these security-based swap transactions otherwise 
would be subject to the registration requirements of the Securities Act 
and the Exchange Act. Absent the extension of the expiration dates 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, which would provide 
investors with civil remedies in addition to antifraud remedies, and 
may have to satisfy the applicable provisions of the Trust Indenture 
Act. A registration statement covering the offer and sale of 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. As a result of the extension 
of the expiration dates in the interim final rules, while an investor 
would be able to pursue an antifraud action in connection with the 
purchase and sale of security-based swaps under Section 10(b) of the 
Exchange Act, it would not be able to pursue civil remedies under 
Sections 11 or 12 of the Securities Act. The Commission could

[[Page 7659]]

still pursue an antifraud action in the offer and sale of security-
based swaps under Section 17(a) of the Securities Act.

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''),\52\ 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.\53\ We requested comment 
on whether our conclusion that there are no collections of information 
is correct, and we did not receive any comment.
---------------------------------------------------------------------------

    \52\ 44 U.S.C. 3501 et seq.
    \53\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

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.\54\ 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 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 
participants in 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.\55\ 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.
---------------------------------------------------------------------------

    \54\ 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.
    \55\ For example, as revealed in a current survey conducted by 
Office of the Comptroller of the Currency, 100.0% of credit default 
swap positions held by U.S. commercial banks and trust companies are 
held by those with assets over $10 billion. See Office of the 
Comptroller of the Currency, ``Quarterly Report on Bank Trading and 
Derivatives Activities Third Quarter 2012'' (2012).
---------------------------------------------------------------------------

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, 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, unless otherwise noted.
* * * * *


Sec.  230.240   [Amended]

0
2. In Sec.  230.240(c), in the first sentence, remove the words ``the 
compliance date for final rules that the Commission may adopt further 
defining both the terms security-based swap and eligible contract 
participant'' and add, in their place, the words ``February 11, 2014''.

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, and 7201 et seq., 12 
U.S.C. 5221(e)(3), 15 U.S.C. 8302, and 18 U.S.C. 1350, unless 
otherwise noted.
* * * * *


Sec.  240.12a-11   [Amended]

0
4. In Sec.  240.12a-11(b), in the first sentence, remove the words 
``the compliance date for final rules that the Commission may adopt 
further defining both the terms security-based swap and eligible 
contract participant'' and add, in their place, the words ``February 
11, 2014''.


Sec.  240.12h-1   [Amended]

0
5. In Sec.  240.12h-1(i), in the second sentence, remove the words 
``the compliance date for final rules that the Commission may adopt 
further defining both the terms security-based swap and eligible 
contract participant'' and add, in their place, the words ``February 
11, 2014''.

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. 77eee, 77ggg, 77nnn, 77sss, 78ll(d), 80b-
3, 80b-4, and 80b-11.
* * * * *


Sec.  260.4d-12  [Amended]

0
7. In Sec.  260.4d-12, in the second sentence, remove the words ``the 
compliance date for final rules that the Commission may adopt further 
defining both the terms security-based swap and eligible contract 
participant'' and add, in their place, the words ``February 11, 2014''.

    By the Commission.

    Dated: January 29, 2013.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-02191 Filed 2-1-13; 8:45 am]
BILLING CODE 8011-01-P
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