Order Extending Temporary Exemptions Under the Securities Exchange Act of 1934 in Connection with the Revision of the Definition of “Security” to Encompass Security-Based Swaps, and Request for Comment, 7731-7735 [2014-02834]

Download as PDF Federal Register / Vol. 79, No. 27 / Monday, February 10, 2014 / Notices Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, Station Place, 100 F Street NE., Washington, DC 20549–9303. All submissions should refer to File Number SR–NASDAQ–2014–009. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site https://www.sec.gov/ rules/sro.shtml. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of Nasdaq. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– NASDAQ–2014–009 and should be submitted on or before March 3, 2014. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.17 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–02746 Filed 2–7–14; 8:45 am] mstockstill on DSK4VPTVN1PROD with NOTICES BILLING CODE 8011–01–P 17 17 19:25 Feb 07, 2014 [Release No. 34–71485; File No. S7–27–11] Order Extending Temporary Exemptions Under the Securities Exchange Act of 1934 in Connection with the Revision of the Definition of ‘‘Security’’ to Encompass SecurityBased Swaps, and Request for Comment I. Introduction The Securities and Exchange Commission (‘‘Commission’’) is extending certain temporary exemptive relief contained in a prior Commission order (‘‘Exchange Act Exemptive Order’’) 1 in connection with the revision of the Exchange Act definition of ‘‘security’’ to encompass securitybased swaps. These temporary exemptions were provided by the Commission on July 1, 2011 and are set to expire on February 11, 2014 (‘‘Expiring Temporary Exemptions’’). As described in more detail below, the Commission is extending the expiration date for the Expiring Temporary Exemptions. Specifically, for those Expiring Temporary Exemptions that are not directly linked to pending security-based swap rulemakings, the Commission is extending the expiration date until the earlier of such time as the Commission issues an order or rule determining whether any continuing exemptive relief is appropriate for security-based swap activities with respect to any of these Exchange Act provisions or until three years following the effective date of this Order. For each Expiring Temporary Exemption that is related to pending security-based swap rulemakings, the Commission is extending the expiration date until the compliance date for the related securitybased swap-specific rulemaking. The approach for extending the exemptions related to security-based swap rulemakings reflected in this Order is intended to facilitate a timely phased-in determination regarding the application of the relevant provisions of the Exchange Act to security-based swaps based on the development of the relevant rules mandated by the DoddFrank Wall Street Reform and Consumer Protection Act (‘‘Dodd-Frank Act’’) 2 as 1 See Order Granting Temporary Exemptions under the Securities Exchange Act of 1934 in Connection with the Pending Revisions of the Definition of ‘‘Security’’ to Encompass SecurityBased Swaps, Exchange Act Release No. 64795 (Jul. 1, 2011), 76 FR 39927 (Jul. 7, 2011) (‘‘Exchange Act Exemptive Order’’). 2 The Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124, Stat. 1376 (2010). CFR 200.30–3(a)(12). VerDate Mar<15>2010 SECURITIES AND EXCHANGE COMMISSION Jkt 232001 PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 7731 the Commission moves toward finalizing those rules. This approach also provides the Commission flexibility while Dodd-Frank Act rulemaking is still in progress to determine whether continuing relief should be provided for any Exchange Act provisions that are not directly linked to specific securitybased swap rulemaking. II. Discussion A. Background Title VII of the Dodd-Frank Act amended the Exchange Act definition of ‘‘security’’ to expressly encompass security-based swaps.3 The expansion of the definition of the term ‘‘security’’ has changed the scope of the Exchange Act regulatory provisions that apply to security-based swaps and has raised certain complex questions that require further consideration. On July 1, 2011, the Commission issued an order granting temporary exemptive relief from compliance with certain provisions of the Exchange Act in connection with the revision of the Exchange Act definition of ‘‘security’’ to encompass security-based swaps.4 The overall approach of the Exchange Act Exemptive Order was directed toward maintaining the status quo during the implementation process for the DoddFrank Act, by preserving the application of particular Exchange Act requirements that were already applicable in connection with instruments that became ‘‘security-based swaps’’ following the effective date of the DoddFrank Act,5 but deferring the applicability of additional Exchange Act requirements in connection with those instruments explicitly being defined as ‘‘securities’’ as of the effective date.6 The Expiring Temporary Exemptions generally provide for the following exemptions from Exchange Act: (a) Temporary exemptions in connection with security-based swap activity by certain ‘‘eligible contract participants’’; and (b) temporary exemptions specific to security-based swap activities by registered brokers and dealers.7 These Expiring Temporary Exemptions8 are 3 Exchange Act Section 3(a)(10), 15 U.S.C. 78c(a)(10), as revised by Section 761(a)(2) of the Dodd-Frank Act. 4 See Exchange Act Exemptive Order. 5 Id. The Title VII amendments of the Dodd-Frank Act generally became effective on July 16, 2011 (360 days after the enactment of the Dodd-Frank Act). 6 See Exchange Act Exemptive Order at 5–6. 7 See Exchange Act Exemptive Order at 39–44. 8 The Exchange Act Exemptive Order provided a temporary exemption from Sections 5 and 6 of the Exchange Act until the earliest compliance date set forth in any of the final rules regarding registration of security-based swap execution facilities. The Exchange Act Exemptive Order also provided that E:\FR\FM\10FEN1.SGM Continued 10FEN1 7732 Federal Register / Vol. 79, No. 27 / Monday, February 10, 2014 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES currently scheduled to expire on February 11, 2014.9 To date, the Commission has proposed substantially all of the rules related to the new regulatory regime for derivatives under Title VII and has begun the process of adopting these rules.10 Keeping with the Dodd-Frank Act’s stated objective of promoting financial stability in the U.S. financial system, the Commission has expressed no security-based swap contract entered into on or after July 16, 2011 shall be void or considered voidable by reason of Section 29(b) of the Exchange Act because any person that is a party to the contract violated a provision of the Exchange Act for which the Commission has provided exemptive relief in the Exchange Act Exemptive Order, until such time as the underlying exemptive relief expires. This extension order does not affect either of these expiration dates. 9 See Further Definition of ‘‘Swap,’’ ‘‘SecurityBased Swap,’’ and ‘‘Security-Based Swap Agreement’’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, Exchange Act Release No. 67453 (Jul. 18, 2012), 77 FR 48207 (Aug. 13, 2012) (‘‘Product Definitions Adopting Release’’) (extending the expiration date of the Expiring Temporary Exemptions to February 11, 2013) and Order Extending Temporary Exemptions under the Securities Exchange Act of 1934 in Connection with the Revision of the Definition of ‘‘Security’’ to Encompass Security-Based Swaps, and Request for Comment, Exchange Act Release No. 68864 (Feb. 7, 2013), 78 FR 10218 (Feb. 13, 2013) (‘‘Extension Release’’) (extending the expiration date to February 11, 2014). Before issuing the Extension Release, the Commission received a request to extend the Expiring Temporary Exemptions from market participants, citing concerns that key issues and questions regarding the application of the federal securities laws remained unresolved and continuing concerns about the potential for unnecessary disruption to the security-based swap market. See SIFMA Request for Extension of the Expiration Date of the SEC’s Exchange Act Exemptive Order and SBS Interim final Rules (Dec. 20, 2012) (‘‘SIFMA Extension Request’’), which is available at https://www.sec.gov/comments/s7-2711/s72711-12.pdf. 10 See Statement of General Policy on the Sequencing of the Compliance Dates for Final Rules Applicable to Security-Based Swaps Adopted Pursuant to the Securities Exchange Act of 1934 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange Act Release No. 67177 (Jun. 11, 2012), 77 FR 35625 (Jun. 14, 2012). See also Reopening of Comment Periods for Certain Rulemaking Releases and Policy Statement Applicable to Security-Based Swaps Proposed Pursuant to the Securities Exchange Act of 1934 and the Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange Act Release No. 69491 (May 1, 2013), 78 FR 30800 (May 23, 2013) (‘‘Reopening Release’’) which reopened the comment period until July 22, 2013. See also e.g. Product Definitions Adopting Release; Further Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major Security-Based Swap Participant’’ and ‘‘Eligible Contract Participant’’, Exchange Act Release No. 66868 (Apr. 27, 2012), 77 FR 30596 (May 23, 2012); Process for Submissions for Review of SecurityBased Swaps for Mandatory Clearing and Notice Filing Requirements for Clearing Agencies; Technical Amendments to Rule 19b-4 and Form 19b-4 Applicable to all Self-Regulatory Organizations, Exchange Act Release No. 67286 (Jun. 28, 2012), 88 FR 41602 (Jul. 13, 2012); Clearing Agency Standards, Exchange Act Release No. 68080 (Oct. 22, 2012), 77 FR 66219 (Nov. 2, 2012). VerDate Mar<15>2010 19:25 Feb 07, 2014 Jkt 232001 its intent to move forward deliberatively in implementing the requirements of the Dodd-Frank Act, while minimizing unnecessary disruption and costs to the markets.11 Among the rules for this new regulatory framework that the Commission has proposed are rules relating to (i) capital, margin, and segregation requirements for securitybased swap dealers and major securitybased swap participants,12 (ii) securitybased swap trade acknowledgement,13 and (iii) security-based swap execution facilities registration requirements.14 In addition, the Commission has also been mandated by the Dodd-Frank Act to promulgate recordkeeping and reporting requirements for security-based swap dealers and major security-based swap participants.15 B. Extension of Temporary Exemptions The Commission believes it is necessary or appropriate in the public interest, and consistent with the protection of investors to extend the Expiring Temporary Exemptions in order to avoid any potential market disruption stemming from the application of existing rules to securitybased swap activities. Although the Commission is making significant progress in establishing and finalizing the new regulatory regime for securitiesbased swaps, key issues and questions regarding the application of the federal securities laws to security-based swaps remain unresolved. However, because the Commission has proposed substantially all of the rules related to the new regulatory regime for derivatives under Title VII, the Commission is able to better calibrate the need for extensions of the Expiring Temporary Exemptions based on how those exemptions relate to ongoing rulemaking. Accordingly, under this approach an extension of the Expiring Temporary Exemptions will provide the Commission with additional time to consider the potential impact of the revision of the Exchange Act definition 11 See Exchange Act Exemptive Order. Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants and Capital Requirements for Broker-Dealers, Exchange Act Release No. 68071 (Oct. 18, 2012), 77 FR 70213 (Nov. 23, 2012) (‘‘Security-Based Swap Capital and Margin Rules’’). See also Reopening Release. 13 See Trade Acknowledgement and Verification of Security-Based Swap Transactions, Exchange Act Release No. 63727 (Jan. 14, 2011), 76 FR 3859 (Jan. 21, 2011) (‘‘Trade Acknowledgement Rule’’). See also Reopening Release. 14 See Registration and Regulation of SecurityBased Swap Execution Facilities, Exchange Act Release No. 63825 (Feb. 2, 2011), 76 FR 10948 (Feb. 28, 2011) (‘‘Security-Based Swap Execution Facility Rules’’). See also Reopening Release. 15 See 15 U.S.C. 78o–10(f). of ‘‘security’’ on the scope of Exchange Act provisions applicable to securitybased swaps, as well as the appropriateness of applying certain Exchange Act provisions to securitybased swap activities in light of the Commission’s continuing rulemaking efforts.16 While the Commission is generally extending the Expiring Temporary Exemptions, it is refining the applicable expiration dates for these exemptions by (1) extending the expiration date of certain Expiring Temporary Exemptions that are generally not directly related to specific security-based swap rulemakings until the earlier of such time that the Commission issues an order or rule determining whether any continuing exemptive relief is appropriate for security-based swap activities with respect to any of these Exchange Act provisions or until three years following the effective date of this Order, and (2) extending the expiration date of other Expiring Temporary Exemptions that are directly related to specific security-based swap rulemakings, until the compliance date for the relevant security-based swap rulemaking.17 This approach recognizes the continuing development of the new regulatory regime for security-based swaps and takes into consideration the interrelation of certain existing Exchange Act provisions with this new regime. Specifically, the Commission believes it is necessary or appropriate in the public interest, and consistent with the protection of investors for the subset of Expiring Temporary Exemptions that are related to certain ongoing rulemakings to be addressed within any such rulemakings that are finalized in order to determine what, if any, exemptions would be appropriate based on the structure of the regulatory framework. The expiration dates of this subset of Expiring Temporary Exemptions will be extended until they are addressed within any relevant rulemakings relating to: (i) Capital, margin, and segregation requirements 12 See PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 16 This is also consistent with previous requests to extend the Expiring Temporary Exemptions. See SIFMA Extension Request. The Commission has also received a request for certain permanent exemptions upon the expiration of the exemptions contained in the Exchange Act Exemptive Order. See SIFMA SBS Exemptive Relief Request (Dec. 5, 2011), which is available at https://www.sec.gov/ comments/s7-27-11/s72711-10.pdf. 17 Subsequent to the issuance of the Exchange Act Exemptive Order, the Commission adopted rules related to certain requirements applicable to municipal advisors. See Registration of Municipal Advisors, Exchange Act Release No. 70462 (Sep. 20, 2013), 78 FR 67467 (Nov. 12, 2013). The temporary exemptions provided in this order do not apply to these recently adopted rules. E:\FR\FM\10FEN1.SGM 10FEN1 Federal Register / Vol. 79, No. 27 / Monday, February 10, 2014 / Notices for security-based swap dealers and major security-based swap participants, (ii) recordkeeping and reporting requirements for security-based swap dealers and major security-based swap participants, (iii) security-based swap trade acknowledgement rules, and/or (iv) registration requirements for security-based swap execution facilities. In addition, with respect to the subset of Expiring Temporary Exemptions that are not directly related to specific security-based swap rulemakings, the Commission believes it would be appropriate for these exemptions to continue for three years or until such time as the Commission issues an order or rule determining whether any continuing exemption is applicable to any of these provisions. This approach is designed to limit the potential for market disruptions. Moreover, this approach is designed to provide sufficient time for the Commission to explore and potentially develop an appropriate framework for regulating security based swap activities and to provide sufficient time for public input regarding any such potential framework. Accordingly, pursuant to its authority under Section 36 of the Exchange Act,18 the Commission believes it is necessary or appropriate in the public interest, and consistent with the protection of investors to extend the Expiring Temporary Exemptions that are not related to specific securities-based swap rulemakings until the earlier of the time that the Commission issues an order or rule determining whether continuing exemptive relief is appropriate or until three years after the effective date of this Order. The Commission is also, pursuant to its authority under Section 36, extending the below outlined Expiring Temporary Exemptions, until the earliest compliance dates established in applicable rulemakings. 1. Expiring Temporary Exemptions Relating to Security-Based Swap Capital and Margin Rules mstockstill on DSK4VPTVN1PROD with NOTICES The Commission is extending the Expiring Temporary Exemptions for the following Exchange Act provisions until the earliest compliance date set forth in 18 15 U.S.C. 78mm. Section 36 of the Exchange Act authorizes the Commission to conditionally or unconditionally exempt, by rule, regulation, or order any person, security, or transaction (or any class or classes of persons, securities, or transactions) from any provision or provisions of the Exchange Act or any rule or regulation thereunder, to the extent such exemption is necessary or appropriate in the public interest, and is consistent with the protection of investors. VerDate Mar<15>2010 19:25 Feb 07, 2014 Jkt 232001 any final security-based swap capital, margin, and segregation rules: 19 • Section 7,20 regarding the margin requirements for broker-dealers; and Regulation T,21 a Federal Reserve Board regulation regarding broker-dealer extension of credit.22 • Section 15(c)(3),23 which provides the Commission with rulemaking authority in connection with brokerdealer financial responsibility; Exchange Act Rule 15c3–1,24 including Appendices A–G (Exchange Act Rules 15c3–1a through 15c3–1g) 25 regarding net capital requirements for brokers and dealers; Exchange Act Rule 15c3–3,26 including 15c3–3a,27 regarding brokerdealer reserves and custody of securities; and Exchange Act Rule 15c3– 4,28 regarding internal risk management control systems for OTC derivatives dealers.29 2. Expiring Temporary Exemptions Relating to Security-Based Swap Recordkeeping Rules The Commission is extending the Expiring Temporary Exemptions for the following Exchange Act provisions until the earliest compliance date set forth in any final rules regarding recordkeeping and reporting requirements for securitybased swap dealers and major securitybased swap participants: 30 19 In late 2012, the Commission proposed the Security-Based Swap Capital and Margin Rules. The proposed rules, if adopted, will clarify how certain Exchange Act provisions relating to the capital, margin, and segregation requirements of registered broker-dealers will apply to the security-based swap activities of registered broker-dealers. 20 15 U.S.C. 78g. 21 12 CFR 220.1 et seq. 22 Under the approach of preserving the status quo, the Exchange Act Exemptive Order provided registered broker-dealers a limited exemption from Section 7(c) and Regulation T only to the extent that these provisions did not apply to the broker-dealer’s security-based swap positions or activities prior to expansion of the definition of ‘‘security’’ to include security-based swaps. 23 15 U.S.C. 78o(c)(3). 24 17 CFR 240.15c3–1. 25 17 CFR 240.15c3–1a through 15c3–1g. 26 17 CFR 240.15c3–3. 27 17 CFR 240.15c3–3a. 28 17 CFR 240.15c3–4. 29 Under the approach of preserving the status quo, the Exchange Act Exemptive Order provided registered broker-dealers a limited exemption from Section 15(c)(3) and Rules 15c3–1 and 15c3–3 only to the extent that these provisions did not apply to the broker-dealer’s security-based swap positions or activities prior to expansion of the definition of ‘‘security’’ to include security-based swaps. However, the limited exemption from Rule 15c3– 3 is not available for registered broker-dealers’ activities and positions related to cleared securitybased swaps, to the extent that a broker-dealer is a member of a clearing agency that functions as a central counterparty for security-based swaps, and holds customer funds or securities in connection with cleared security-based swaps. 30 See 15 U.S.C. 78o–10(f). PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 7733 • Section 17(a),31 regarding brokerdealer obligations to make, keep and furnish information; Section 17(b),32 regarding broker-dealer records subject to examination; Exchange Act Rules 17a–3 through 17a–5,33 regarding records to be made and preserved by broker-dealers and reports to be made by broker-dealers; Exchange Act Rule 17a–11,34 regarding notifications that broker-dealers are required to make; and Exchange Act Rule 17a–13,35 regarding quarterly security counts to be made by certain exchange members and brokerdealers.36 3. Expiring Temporary Exemptions Relating to Broker-Dealer Registration Requirements The Commission is extending the Expiring Temporary Exemptions that relate to the registration requirements under section 15(a)(1) of the Exchange Act 37 and the other requirements of the Exchange Act and the rules and regulations thereunder that apply to a broker or dealer that is not registered with the Commission 38 until the later of the compliance dates set forth in (i) any final rules regarding capital, margin and segregation requirements for securitybased swap dealers and major securitybased swap participants 39 or (ii) any final rules regarding recordkeeping and reporting requirements for securitybased swap dealers and major securitybased swap participants.40 31 15 U.S.C. 78q(a). U.S.C. 78q(b). 33 17 CFR 240.17a–3 through 17a–5. 34 17 CFR 240.17a–11. 35 17 CFR 240.17a–13. 36 Under the approach of preserving the status quo, the Exchange Act Exemptive Order provided registered broker-dealers a limited exemption from Sections 17(a) and (b), Rules 17a–3 through 17a–5, and Rule 17a–13 only to the extent that these provisions did not apply to the broker-dealer’s security-based swap positions or activities prior to expansion of the definition of ‘‘security’’ to include security-based swaps. 37 15 U.S.C. 78o(a)(1). 38 The Exchange Act Exemptive Order excluded from the exemption (1) the ‘‘broker’’ registration requirements of Section 15(a)(1) (and other Exchange Act requirements that apply to a nonregistered broker) for broker activities involving security-based swaps by persons that are members of a clearing agency that functions as a central counterparty for security-based swaps and that holds customer funds and securities in connection with security-based swaps; and (2) the ‘‘dealer’’ registration requirements of Section 15(a)(1) (and other Exchange Act requirements that apply to a non-registered dealer) for security-based swaps dealing activities unless those activities involve counterparties that meet the definition of an eligible contract participant. 39 See supra note 19. 40 See 15 U.S.C. 78o–10(f). 32 15 E:\FR\FM\10FEN1.SGM 10FEN1 7734 Federal Register / Vol. 79, No. 27 / Monday, February 10, 2014 / Notices 4. Expiring Temporary Exemption Relating to Trade Acknowledgement Rule The Commission is extending the Expiring Temporary Exemption for Exchange Act Rule 10b–10,41 regarding confirmation of transactions, until the earliest compliance date set forth in any final rules regarding trade acknowledgement and verification of security-based swap transactions.42 5. Expiring Temporary Exemption Relating to Regulation ATS The Commission is extending the Expiring Temporary Exemption for Regulation ATS,43 regarding the regulatory requirements that apply to alternative trading systems, until the earliest compliance date set forth in any final rules regarding the registration of the security-based swap execution facilities.44 III. Solicitation of Comments The Commission believes that it would be useful to continue to provide interested parties the opportunity to comment on any aspect of the temporary exemptions contained in the Exchange Act Exemptive Order, this Order extending the Expiring Temporary Exemptions, and any additional relief that should be granted upon the expiration of the extension of the Expiring Temporary Exemptions, including: 1. Is the distinction between whether an exemption is ‘‘not directly linked’’ to any security-based swap rulemaking or is ‘‘related’’ to security-based swap rulemaking appropriate in connection with the extension of the Expiring Temporary Exemptions? Are there additional Expiring Temporary 41 17 CFR 240.10b–10. January 2011, the Commission proposed the Trade Acknowledgement Rule which would govern the way in which certain security-based swap transactions would be acknowledged and verified by the parties. Under the proposed rule, securitybased swap dealers and major security-based swap participants would have to provide to their counterparties a trade acknowledgement detailing information specific to the transaction. The Commission also proposed a limited exemption from the requirements of Exchange Act Rule 10b– 10 for security-based swap dealers and major security-based swap participants that confirm their security-based swap transactions in compliance with the Trade Acknowledgement Rule. The proposed exemption is intended to avoid the duplicative requirements of having to comply with both Exchange Act Rule 10b–10 and the proposed Trade Acknowledgement Rule. 43 17 CFR 242.300 et seq. 44 In February 2011, the Commission proposed the Security-Based Swap Execution Facility Rules which, if adopted, will create a registration framework for security-based swap execution facilities, as well as, establish rules governing these entities. mstockstill on DSK4VPTVN1PROD with NOTICES 42 In VerDate Mar<15>2010 19:25 Feb 07, 2014 Jkt 232001 Exemptions that should be linked to the adoption of any specific security-based swap rulemakings? 2. Is additional exemptive relief necessary or appropriate in light of the ongoing implementation of the DoddFrank Act? Are there particular Exchange Act provisions, for which relief has already been granted, that do not warrant a continuing exemption? Are there particular Exchange Act provisions, for which relief has not previously been granted, that warrant exemptions? Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/exorders.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number S7– 27–11 on the subject line; or • Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F St. NE., Washington, DC 20549– 1090. All submissions should refer to File Number S7–27–11. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/rules/ exorders.shtml). Comments are also available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F St. NE., Washington, DC 20549 on official business days between the hours of 10 a.m. and 3 p.m. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. IV. Conclusion It Is Hereby Ordered, pursuant to Section 36 of the Exchange Act, that the Expiring Temporary Exemptions contained in the Exchange Act Exemptive Order in connection with the revisions of the Exchange Act definition of ‘‘security’’ to encompass securitybased swaps are extended until the earlier of three years following the effective date of this Order or, until such time that the Commission issues an PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 order or rule determining whether continuing exemptive relief is appropriate for security-based swap activities with respect to any of the Expiring Temporary Exemptions, except as set forth below: (a) The following exemptions are extended until the compliance date set forth in any final rules regarding capital, margin and segregation requirements for security-based swap dealers and major security-based swap participants: (1) Section 7; (2) Section 15(c)(3); (3) Regulation T, 12 CFR 220.1 et seq.; (4) Rule 15c3–1; (5) Rule 15c3–3; and (6) Rule 15c3–4. (b) The following exemptions are extended until the compliance date set forth in any final rules regarding recordkeeping and reporting requirements for security-based swap dealers and major security-based swap participants: (1) Section 17(a); (2) Section 17(b); (3) Rule 17a–3; (4) Rule 17a–4; (5) Rule 17a–5; (6) Rule 17a–11; and (7) Rule 17a–13. (c) The exemption pertaining to Rule 10b-10 is extended until the compliance date set forth in any final rules regarding trade acknowledgement and verification of security-based swap transactions. (d) The exemption pertaining to Regulation ATS, 17 CFR 242.300 et seq., is extended until the compliance date set forth in any final rules regarding the registration of security-based swap execution facilities. (e) The following exemptions are extended until the later of the compliance dates set forth in (i) any final rules regarding capital, margin and segregation requirements for securitybased swap dealers and major securitybased swap participants and (ii) any final rules regarding recordkeeping and reporting requirements for securitybased swap dealers and major securitybased swap participants: (1) Exemptions pertaining to the ‘‘broker’’ registration requirements of section 15(a)(1) of the Exchange Act, and the other requirements of the Exchange Act and the rules and regulations thereunder that apply to a broker that is not registered with the Commission, solely in connection with broker activities involving securitybased swaps, and (2) Exemptions pertaining to the ‘‘dealer’’ registration requirements of section 15(a)(1) of the Exchange Act, and the other requirements of the E:\FR\FM\10FEN1.SGM 10FEN1 7735 Federal Register / Vol. 79, No. 27 / Monday, February 10, 2014 / Notices Exchange Act and the rules and regulations thereunder that apply to a dealer that is not registered with the Commission, solely in connection with dealing activities involving securitybased swaps with counterparties that meet the definition of eligible contract participant as set forth in section 1a(12) of the Commodity Exchange Act. Percent Businesses And Small Agricultural Cooperatives without Credit Available Elsewhere .................. Non-Profit Organizations without Credit Available Elsewhere ....... Orleans. The Interest Rates are: Percent 4.000 (Catalog of Federal Domestic Assistance Number 59002) For Physical Damage: Non-Profit Organizations With Credit Available Elsewhere ... Non-Profit Organizations Without Credit Available Elsewhere ..................................... For Economic Injury: Non-Profit Organizations Without Credit Available Elsewhere ..................................... BILLING CODE 8011–01–P Dated: January 29, 2014. Jeanne Hulit, Acting Administrator. The number assigned to this disaster for physical damage is 13880B and for economic injury is 13881B. SMALL BUSINESS ADMINISTRATION [FR Doc. 2014–02705 Filed 2–7–14; 8:45 am] By the Commission. Elizabeth M. Murphy, Secretary. [FR Doc. 2014–02834 Filed 2–7–14; 8:45 am] 2.625 The number assigned to this disaster for economic injury is 138770. The State which received an EIDL Declaration # is West Virginia. 2.625 2.625 2.625 BILLING CODE 8025–01–P (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) West Virginia Disaster #WV–00034 Declaration of Economic Injury SMALL BUSINESS ADMINISTRATION James E. Rivera. Associate Administrator for Disaster Assistance. U.S. Small Business Administration. ACTION: Notice. Vermont Disaster #VT–00029 BILLING CODE 8025–01–P U.S. Small Business Administration. ACTION: Notice. SMALL BUSINESS ADMINISTRATION [Disaster Declaration #13877] [Disaster Declaration #13880 and #13881] AGENCY: mstockstill on DSK4VPTVN1PROD with NOTICES AGENCY: This is a notice of an Economic Injury Disaster Loan (EIDL) declaration for the State of West Virginia, dated 01/29/2014. Incident: Chemical Spill that contaminated the water supply. Incident Period: 01/09/2014 through 01/17/2014. Effective Date: 01/29/2014. EIDL Loan Application Deadline Date: 10/29/2014. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator’s EIDL declaration, applications for economic injury disaster loans may be filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Boone, Kanawha, Putnam. Contiguous Counties: West Virginia: Cabell, Clay, Fayette, Jackson, Lincoln, Logan, Mason, Nicholas, Raleigh, Roane, Wyoming. The Interest Rates are: SUMMARY: VerDate Mar<15>2010 19:25 Feb 07, 2014 Jkt 232001 [FR Doc. 2014–02707 Filed 2–7–14; 8:45 am] This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Vermont (FEMA–4163–DR), dated 01/29/2014. Incident: Severe Winter Storms. Incident Period: 12/20/2013 through 12/26/2013. Effective Date: 01/29/2014. Physical Loan Application Deadline Date: 03/31/2014. Economic Injury (EIDL) Loan Application Deadline Date: 10/29/2014. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the President’s major disaster declaration on 01/29/2014, Private Non-Profit organizations that provide essential services of governmental nature may file disaster loan applications at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Caledonia, Chittenden, Essex, Franklin, Grand Isle, Lamoille, SUMMARY: PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 Audit and Financial Management Advisory Committee, ReEstablishment U.S. Small Business Administration (SBA). ACTION: Notice of re-establishment of Audit and Financial Management Advisory Committee. AGENCY: Pursuant to the Federal Advisory Committee Act and its implementing regulations, SBA is issuing this notice to announce the reestablishment of its Audit and Financial Management Advisory Committee. This advisory committee is being reestablished to help the agency identify and address financial management topics determined by the Agency. FOR FURTHER INFORMATION CONTACT: Questions about the Audit and Financial Management Advisory Committee may be directed to John Kushman, telephone (202) 205–6103, fax (202) 481–2671, email john.kushman@sba.gov or mail, U.S. Small Business Administration, 409 3rd Street SW., Washington, DC 20416. SUPPLEMENTARY INFORMATION: Pursuant to its authority in section 8(b)(13) of the Small Business Act, (15 U.S.C. 637(b)), SBA is re-establishing the Audit and Financial Management Advisory Committee (AFMAC or the Committee). This discretionary committee is being re-established in accordance with the provisions of the Federal Advisory Committee Act, as amended (5 U.S.C. App.). SUMMARY: E:\FR\FM\10FEN1.SGM 10FEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 27 (Monday, February 10, 2014)]
[Notices]
[Pages 7731-7735]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02834]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71485; File No. S7-27-11]

Order Extending Temporary Exemptions Under the Securities
Exchange Act of 1934 in Connection with the Revision of the Definition
of ``Security'' to Encompass Security-Based Swaps, and Request for
Comment

I. Introduction

The Securities and Exchange Commission (``Commission'') is
extending certain temporary exemptive relief contained in a prior
Commission order (``Exchange Act Exemptive Order'') \1\ in connection
with the revision of the Exchange Act definition of ``security'' to
encompass security-based swaps. These temporary exemptions were
provided by the Commission on July 1, 2011 and are set to expire on
February 11, 2014 (``Expiring Temporary Exemptions'').
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\1\ See Order Granting Temporary Exemptions under the Securities
Exchange Act of 1934 in Connection with the Pending Revisions of the
Definition of ``Security'' to Encompass Security-Based Swaps,
Exchange Act Release No. 64795 (Jul. 1, 2011), 76 FR 39927 (Jul. 7,
2011) (``Exchange Act Exemptive Order'').
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As described in more detail below, the Commission is extending the
expiration date for the Expiring Temporary Exemptions. Specifically,
for those Expiring Temporary Exemptions that are not directly linked to
pending security-based swap rulemakings, the Commission is extending
the expiration date until the earlier of such time as the Commission
issues an order or rule determining whether any continuing exemptive
relief is appropriate for security-based swap activities with respect
to any of these Exchange Act provisions or until three years following
the effective date of this Order. For each Expiring Temporary Exemption
that is related to pending security-based swap rulemakings, the
Commission is extending the expiration date until the compliance date
for the related security-based swap-specific rulemaking.
The approach for extending the exemptions related to security-based
swap rulemakings reflected in this Order is intended to facilitate a
timely phased-in determination regarding the application of the
relevant provisions of the Exchange Act to security-based swaps based
on the development of the relevant rules mandated by the Dodd-Frank
Wall Street Reform and Consumer Protection Act (``Dodd-Frank Act'') \2\
as the Commission moves toward finalizing those rules. This approach
also provides the Commission flexibility while Dodd-Frank Act
rulemaking is still in progress to determine whether continuing relief
should be provided for any Exchange Act provisions that are not
directly linked to specific security-based swap rulemaking.
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\2\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124, Stat. 1376 (2010).
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II. Discussion

A. Background

Title VII of the Dodd-Frank Act amended the Exchange Act definition
of ``security'' to expressly encompass security-based swaps.\3\ The
expansion of the definition of the term ``security'' has changed the
scope of the Exchange Act regulatory provisions that apply to security-
based swaps and has raised certain complex questions that require
further consideration.
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\3\ Exchange Act Section 3(a)(10), 15 U.S.C. 78c(a)(10), as
revised by Section 761(a)(2) of the Dodd-Frank Act.
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On July 1, 2011, the Commission issued an order granting temporary
exemptive relief from compliance with certain provisions of the
Exchange Act in connection with the revision of the Exchange Act
definition of ``security'' to encompass security-based swaps.\4\ The
overall approach of the Exchange Act Exemptive Order was directed
toward maintaining the status quo during the implementation process for
the Dodd-Frank Act, by preserving the application of particular
Exchange Act requirements that were already applicable in connection
with instruments that became ``security-based swaps'' following the
effective date of the Dodd-Frank Act,\5\ but deferring the
applicability of additional Exchange Act requirements in connection
with those instruments explicitly being defined as ``securities'' as of
the effective date.\6\ The Expiring Temporary Exemptions generally
provide for the following exemptions from Exchange Act: (a) Temporary
exemptions in connection with security-based swap activity by certain
``eligible contract participants''; and (b) temporary exemptions
specific to security-based swap activities by registered brokers and
dealers.\7\ These Expiring Temporary Exemptions\8\ are

[[Page 7732]]

currently scheduled to expire on February 11, 2014.\9\
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\4\ See Exchange Act Exemptive Order.
\5\ Id. The Title VII amendments of the Dodd-Frank Act generally
became effective on July 16, 2011 (360 days after the enactment of
the Dodd-Frank Act).
\6\ See Exchange Act Exemptive Order at 5-6.
\7\ See Exchange Act Exemptive Order at 39-44.
\8\ The Exchange Act Exemptive Order provided a temporary
exemption from Sections 5 and 6 of the Exchange Act until the
earliest compliance date set forth in any of the final rules
regarding registration of security-based swap execution facilities.
The Exchange Act Exemptive Order also provided that no security-
based swap contract entered into on or after July 16, 2011 shall be
void or considered voidable by reason of Section 29(b) of the
Exchange Act because any person that is a party to the contract
violated a provision of the Exchange Act for which the Commission
has provided exemptive relief in the Exchange Act Exemptive Order,
until such time as the underlying exemptive relief expires. This
extension order does not affect either of these expiration dates.
\9\ See Further Definition of ``Swap,'' ``Security-Based Swap,''
and ``Security-Based Swap Agreement''; Mixed Swaps; Security-Based
Swap Agreement Recordkeeping, Exchange Act Release No. 67453 (Jul.
18, 2012), 77 FR 48207 (Aug. 13, 2012) (``Product Definitions
Adopting Release'') (extending the expiration date of the Expiring
Temporary Exemptions to February 11, 2013) and Order Extending
Temporary Exemptions under the Securities Exchange Act of 1934 in
Connection with the Revision of the Definition of ``Security'' to
Encompass Security-Based Swaps, and Request for Comment, Exchange
Act Release No. 68864 (Feb. 7, 2013), 78 FR 10218 (Feb. 13, 2013)
(``Extension Release'') (extending the expiration date to February
11, 2014). Before issuing the Extension Release, the Commission
received a request to extend the Expiring Temporary Exemptions from
market participants, citing concerns that key issues and questions
regarding the application of the federal securities laws remained
unresolved and continuing concerns about the potential for
unnecessary disruption to the security-based swap market. See SIFMA
Request for Extension of the Expiration Date of the SEC's Exchange
Act Exemptive Order and SBS Interim final Rules (Dec. 20, 2012)
(``SIFMA Extension Request''), which is available at https://www.sec.gov/comments/s7-27-11/s72711-12.pdf.
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To date, the Commission has proposed substantially all of the rules
related to the new regulatory regime for derivatives under Title VII
and has begun the process of adopting these rules.\10\ Keeping with the
Dodd-Frank Act's stated objective of promoting financial stability in
the U.S. financial system, the Commission has expressed its intent to
move forward deliberatively in implementing the requirements of the
Dodd-Frank Act, while minimizing unnecessary disruption and costs to
the markets.\11\ Among the rules for this new regulatory framework that
the Commission has proposed are rules relating to (i) capital, margin,
and segregation requirements for security-based swap dealers and major
security-based swap participants,\12\ (ii) security-based swap trade
acknowledgement,\13\ and (iii) security-based swap execution facilities
registration requirements.\14\ In addition, the Commission has also
been mandated by the Dodd-Frank Act to promulgate recordkeeping and
reporting requirements for security-based swap dealers and major
security-based swap participants.\15\
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\10\ See Statement of General Policy on the Sequencing of the
Compliance Dates for Final Rules Applicable to Security-Based Swaps
Adopted Pursuant to the Securities Exchange Act of 1934 and the
Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange
Act Release No. 67177 (Jun. 11, 2012), 77 FR 35625 (Jun. 14, 2012).
See also Reopening of Comment Periods for Certain Rulemaking
Releases and Policy Statement Applicable to Security-Based Swaps
Proposed Pursuant to the Securities Exchange Act of 1934 and the
Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange
Act Release No. 69491 (May 1, 2013), 78 FR 30800 (May 23, 2013)
(``Reopening Release'') which reopened the comment period until July
22, 2013. See also e.g. Product Definitions Adopting Release;
Further Definition of ``Swap Dealer,'' ``Security-Based Swap
Dealer,'' ``Major Swap Participant,'' ``Major Security-Based Swap
Participant'' and ``Eligible Contract Participant'', Exchange Act
Release No. 66868 (Apr. 27, 2012), 77 FR 30596 (May 23, 2012);
Process for Submissions for Review of Security-Based Swaps for
Mandatory Clearing and Notice Filing Requirements for Clearing
Agencies; Technical Amendments to Rule 19b-4 and Form 19b-4
Applicable to all Self-Regulatory Organizations, Exchange Act
Release No. 67286 (Jun. 28, 2012), 88 FR 41602 (Jul. 13, 2012);
Clearing Agency Standards, Exchange Act Release No. 68080 (Oct. 22,
2012), 77 FR 66219 (Nov. 2, 2012).
\11\ See Exchange Act Exemptive Order.
\12\ See Capital, Margin, and Segregation Requirements for
Security-Based Swap Dealers and Major Security-Based Swap
Participants and Capital Requirements for Broker-Dealers, Exchange
Act Release No. 68071 (Oct. 18, 2012), 77 FR 70213 (Nov. 23, 2012)
(``Security-Based Swap Capital and Margin Rules''). See also
Reopening Release.
\13\ See Trade Acknowledgement and Verification of Security-
Based Swap Transactions, Exchange Act Release No. 63727 (Jan. 14,
2011), 76 FR 3859 (Jan. 21, 2011) (``Trade Acknowledgement Rule'').
See also Reopening Release.
\14\ See Registration and Regulation of Security-Based Swap
Execution Facilities, Exchange Act Release No. 63825 (Feb. 2, 2011),
76 FR 10948 (Feb. 28, 2011) (``Security-Based Swap Execution
Facility Rules''). See also Reopening Release.
\15\ See 15 U.S.C. 78o-10(f).
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B. Extension of Temporary Exemptions

The Commission believes it is necessary or appropriate in the
public interest, and consistent with the protection of investors to
extend the Expiring Temporary Exemptions in order to avoid any
potential market disruption stemming from the application of existing
rules to security-based swap activities. Although the Commission is
making significant progress in establishing and finalizing the new
regulatory regime for securities-based swaps, key issues and questions
regarding the application of the federal securities laws to security-
based swaps remain unresolved. However, because the Commission has
proposed substantially all of the rules related to the new regulatory
regime for derivatives under Title VII, the Commission is able to
better calibrate the need for extensions of the Expiring Temporary
Exemptions based on how those exemptions relate to ongoing rulemaking.
Accordingly, under this approach an extension of the Expiring Temporary
Exemptions will provide the Commission with additional time to consider
the potential impact of the revision of the Exchange Act definition of
``security'' on the scope of Exchange Act provisions applicable to
security-based swaps, as well as the appropriateness of applying
certain Exchange Act provisions to security-based swap activities in
light of the Commission's continuing rulemaking efforts.\16\
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\16\ This is also consistent with previous requests to extend
the Expiring Temporary Exemptions. See SIFMA Extension Request. The
Commission has also received a request for certain permanent
exemptions upon the expiration of the exemptions contained in the
Exchange Act Exemptive Order. See SIFMA SBS Exemptive Relief Request
(Dec. 5, 2011), which is available at https://www.sec.gov/comments/s7-27-11/s72711-10.pdf.
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While the Commission is generally extending the Expiring Temporary
Exemptions, it is refining the applicable expiration dates for these
exemptions by (1) extending the expiration date of certain Expiring
Temporary Exemptions that are generally not directly related to
specific security-based swap rulemakings until the earlier of such time
that the Commission issues an order or rule determining whether any
continuing exemptive relief is appropriate for security-based swap
activities with respect to any of these Exchange Act provisions or
until three years following the effective date of this Order, and (2)
extending the expiration date of other Expiring Temporary Exemptions
that are directly related to specific security-based swap rulemakings,
until the compliance date for the relevant security-based swap
rulemaking.\17\
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\17\ Subsequent to the issuance of the Exchange Act Exemptive
Order, the Commission adopted rules related to certain requirements
applicable to municipal advisors. See Registration of Municipal
Advisors, Exchange Act Release No. 70462 (Sep. 20, 2013), 78 FR
67467 (Nov. 12, 2013). The temporary exemptions provided in this
order do not apply to these recently adopted rules.
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This approach recognizes the continuing development of the new
regulatory regime for security-based swaps and takes into consideration
the interrelation of certain existing Exchange Act provisions with this
new regime. Specifically, the Commission believes it is necessary or
appropriate in the public interest, and consistent with the protection
of investors for the subset of Expiring Temporary Exemptions that are
related to certain ongoing rulemakings to be addressed within any such
rulemakings that are finalized in order to determine what, if any,
exemptions would be appropriate based on the structure of the
regulatory framework. The expiration dates of this subset of Expiring
Temporary Exemptions will be extended until they are addressed within
any relevant rulemakings relating to: (i) Capital, margin, and
segregation requirements

[[Page 7733]]

for security-based swap dealers and major security-based swap
participants, (ii) recordkeeping and reporting requirements for
security-based swap dealers and major security-based swap participants,
(iii) security-based swap trade acknowledgement rules, and/or (iv)
registration requirements for security-based swap execution facilities.
In addition, with respect to the subset of Expiring Temporary
Exemptions that are not directly related to specific security-based
swap rulemakings, the Commission believes it would be appropriate for
these exemptions to continue for three years or until such time as the
Commission issues an order or rule determining whether any continuing
exemption is applicable to any of these provisions. This approach is
designed to limit the potential for market disruptions. Moreover, this
approach is designed to provide sufficient time for the Commission to
explore and potentially develop an appropriate framework for regulating
security based swap activities and to provide sufficient time for
public input regarding any such potential framework. Accordingly,
pursuant to its authority under Section 36 of the Exchange Act,\18\ the
Commission believes it is necessary or appropriate in the public
interest, and consistent with the protection of investors to extend the
Expiring Temporary Exemptions that are not related to specific
securities-based swap rulemakings until the earlier of the time that
the Commission issues an order or rule determining whether continuing
exemptive relief is appropriate or until three years after the
effective date of this Order.
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\18\ 15 U.S.C. 78mm. Section 36 of the Exchange Act authorizes
the Commission to conditionally or unconditionally exempt, by rule,
regulation, or order any person, security, or transaction (or any
class or classes of persons, securities, or transactions) from any
provision or provisions of the Exchange Act or any rule or
regulation thereunder, to the extent such exemption is necessary or
appropriate in the public interest, and is consistent with the
protection of investors.
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The Commission is also, pursuant to its authority under Section 36,
extending the below outlined Expiring Temporary Exemptions, until the
earliest compliance dates established in applicable rulemakings.
1. Expiring Temporary Exemptions Relating to Security-Based Swap
Capital and Margin Rules
The Commission is extending the Expiring Temporary Exemptions for
the following Exchange Act provisions until the earliest compliance
date set forth in any final security-based swap capital, margin, and
segregation rules: \19\
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\19\ In late 2012, the Commission proposed the Security-Based
Swap Capital and Margin Rules. The proposed rules, if adopted, will
clarify how certain Exchange Act provisions relating to the capital,
margin, and segregation requirements of registered broker-dealers
will apply to the security-based swap activities of registered
broker-dealers.
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Section 7,\20\ regarding the margin requirements for
broker-dealers; and Regulation T,\21\ a Federal Reserve Board
regulation regarding broker-dealer extension of credit.\22\
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\20\ 15 U.S.C. 78g.
\21\ 12 CFR 220.1 et seq.
\22\ Under the approach of preserving the status quo, the
Exchange Act Exemptive Order provided registered broker-dealers a
limited exemption from Section 7(c) and Regulation T only to the
extent that these provisions did not apply to the broker-dealer's
security-based swap positions or activities prior to expansion of
the definition of ``security'' to include security-based swaps.
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Section 15(c)(3),\23\ which provides the Commission with
rulemaking authority in connection with broker-dealer financial
responsibility; Exchange Act Rule 15c3-1,\24\ including Appendices A-G
(Exchange Act Rules 15c3-1a through 15c3-1g) \25\ regarding net capital
requirements for brokers and dealers; Exchange Act Rule 15c3-3,\26\
including 15c3-3a,\27\ regarding broker-dealer reserves and custody of
securities; and Exchange Act Rule 15c3-4,\28\ regarding internal risk
management control systems for OTC derivatives dealers.\29\
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\23\ 15 U.S.C. 78o(c)(3).
\24\ 17 CFR 240.15c3-1.
\25\ 17 CFR 240.15c3-1a through 15c3-1g.
\26\ 17 CFR 240.15c3-3.
\27\ 17 CFR 240.15c3-3a.
\28\ 17 CFR 240.15c3-4.
\29\ Under the approach of preserving the status quo, the
Exchange Act Exemptive Order provided registered broker-dealers a
limited exemption from Section 15(c)(3) and Rules 15c3-1 and 15c3-3
only to the extent that these provisions did not apply to the
broker-dealer's security-based swap positions or activities prior to
expansion of the definition of ``security'' to include security-
based swaps. However, the limited exemption from Rule 15c3-3 is not
available for registered broker-dealers' activities and positions
related to cleared security-based swaps, to the extent that a
broker-dealer is a member of a clearing agency that functions as a
central counterparty for security-based swaps, and holds customer
funds or securities in connection with cleared security-based swaps.
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2. Expiring Temporary Exemptions Relating to Security-Based Swap
Recordkeeping Rules
The Commission is extending the Expiring Temporary Exemptions for
the following Exchange Act provisions until the earliest compliance
date set forth in any final rules regarding recordkeeping and reporting
requirements for security-based swap dealers and major security-based
swap participants: \30\
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\30\ See 15 U.S.C. 78o-10(f).
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Section 17(a),\31\ regarding broker-dealer obligations to
make, keep and furnish information; Section 17(b),\32\ regarding
broker-dealer records subject to examination; Exchange Act Rules 17a-3
through 17a-5,\33\ regarding records to be made and preserved by
broker-dealers and reports to be made by broker-dealers; Exchange Act
Rule 17a-11,\34\ regarding notifications that broker-dealers are
required to make; and Exchange Act Rule 17a-13,\35\ regarding quarterly
security counts to be made by certain exchange members and broker-
dealers.\36\
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\31\ 15 U.S.C. 78q(a).
\32\ 15 U.S.C. 78q(b).
\33\ 17 CFR 240.17a-3 through 17a-5.
\34\ 17 CFR 240.17a-11.
\35\ 17 CFR 240.17a-13.
\36\ Under the approach of preserving the status quo, the
Exchange Act Exemptive Order provided registered broker-dealers a
limited exemption from Sections 17(a) and (b), Rules 17a-3 through
17a-5, and Rule 17a-13 only to the extent that these provisions did
not apply to the broker-dealer's security-based swap positions or
activities prior to expansion of the definition of ``security'' to
include security-based swaps.
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3. Expiring Temporary Exemptions Relating to Broker-Dealer Registration
Requirements
The Commission is extending the Expiring Temporary Exemptions that
relate to the registration requirements under section 15(a)(1) of the
Exchange Act \37\ and the other requirements of the Exchange Act and
the rules and regulations thereunder that apply to a broker or dealer
that is not registered with the Commission \38\ until the later of the
compliance dates set forth in (i) any final rules regarding capital,
margin and segregation requirements for security-based swap dealers and
major security-based swap participants \39\ or (ii) any final rules
regarding recordkeeping and reporting requirements for security-based
swap dealers and major security-based swap participants.\40\
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\37\ 15 U.S.C. 78o(a)(1).
\38\ The Exchange Act Exemptive Order excluded from the
exemption (1) the ``broker'' registration requirements of Section
15(a)(1) (and other Exchange Act requirements that apply to a non-
registered broker) for broker activities involving security-based
swaps by persons that are members of a clearing agency that
functions as a central counterparty for security-based swaps and
that holds customer funds and securities in connection with
security-based swaps; and (2) the ``dealer'' registration
requirements of Section 15(a)(1) (and other Exchange Act
requirements that apply to a non-registered dealer) for security-
based swaps dealing activities unless those activities involve
counterparties that meet the definition of an eligible contract
participant.
\39\ See supra note 19.
\40\ See 15 U.S.C. 78o-10(f).

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[[Page 7734]]

4. Expiring Temporary Exemption Relating to Trade Acknowledgement Rule
The Commission is extending the Expiring Temporary Exemption for
Exchange Act Rule 10b-10,\41\ regarding confirmation of transactions,
until the earliest compliance date set forth in any final rules
regarding trade acknowledgement and verification of security-based swap
transactions.\42\
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\41\ 17 CFR 240.10b-10.
\42\ In January 2011, the Commission proposed the Trade
Acknowledgement Rule which would govern the way in which certain
security-based swap transactions would be acknowledged and verified
by the parties. Under the proposed rule, security-based swap dealers
and major security-based swap participants would have to provide to
their counterparties a trade acknowledgement detailing information
specific to the transaction. The Commission also proposed a limited
exemption from the requirements of Exchange Act Rule 10b-10 for
security-based swap dealers and major security-based swap
participants that confirm their security-based swap transactions in
compliance with the Trade Acknowledgement Rule. The proposed
exemption is intended to avoid the duplicative requirements of
having to comply with both Exchange Act Rule 10b-10 and the proposed
Trade Acknowledgement Rule.
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5. Expiring Temporary Exemption Relating to Regulation ATS
The Commission is extending the Expiring Temporary Exemption for
Regulation ATS,\43\ regarding the regulatory requirements that apply to
alternative trading systems, until the earliest compliance date set
forth in any final rules regarding the registration of the security-
based swap execution facilities.\44\
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\43\ 17 CFR 242.300 et seq.
\44\ In February 2011, the Commission proposed the Security-
Based Swap Execution Facility Rules which, if adopted, will create a
registration framework for security-based swap execution facilities,
as well as, establish rules governing these entities.
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III. Solicitation of Comments

The Commission believes that it would be useful to continue to
provide interested parties the opportunity to comment on any aspect of
the temporary exemptions contained in the Exchange Act Exemptive Order,
this Order extending the Expiring Temporary Exemptions, and any
additional relief that should be granted upon the expiration of the
extension of the Expiring Temporary Exemptions, including:
1. Is the distinction between whether an exemption is ``not
directly linked'' to any security-based swap rulemaking or is
``related'' to security-based swap rulemaking appropriate in connection
with the extension of the Expiring Temporary Exemptions? Are there
additional Expiring Temporary Exemptions that should be linked to the
adoption of any specific security-based swap rulemakings?
2. Is additional exemptive relief necessary or appropriate in light
of the ongoing implementation of the Dodd-Frank Act? Are there
particular Exchange Act provisions, for which relief has already been
granted, that do not warrant a continuing exemption? Are there
particular Exchange Act provisions, for which relief has not previously
been granted, that warrant exemptions?
Comments may be submitted by any of the following methods:

Electronic Comments

Use the Commission's Internet comment form (https://www.sec.gov/rules/exorders.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number S7-27-11 on the subject line; or
Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F St. NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number S7-27-11. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (https://www.sec.gov/rules/exorders.shtml). Comments
are also available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F St. NE., Washington, DC 20549
on official business days between the hours of 10 a.m. and 3 p.m. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.

IV. Conclusion

It Is Hereby Ordered, pursuant to Section 36 of the Exchange Act,
that the Expiring Temporary Exemptions contained in the Exchange Act
Exemptive Order in connection with the revisions of the Exchange Act
definition of ``security'' to encompass security-based swaps are
extended until the earlier of three years following the effective date
of this Order or, until such time that the Commission issues an order
or rule determining whether continuing exemptive relief is appropriate
for security-based swap activities with respect to any of the Expiring
Temporary Exemptions, except as set forth below:
(a) The following exemptions are extended until the compliance date
set forth in any final rules regarding capital, margin and segregation
requirements for security-based swap dealers and major security-based
swap participants:
(1) Section 7;
(2) Section 15(c)(3);
(3) Regulation T, 12 CFR 220.1 et seq.;
(4) Rule 15c3-1;
(5) Rule 15c3-3; and
(6) Rule 15c3-4.
(b) The following exemptions are extended until the compliance date
set forth in any final rules regarding recordkeeping and reporting
requirements for security-based swap dealers and major security-based
swap participants:
(1) Section 17(a);
(2) Section 17(b);
(3) Rule 17a-3;
(4) Rule 17a-4;
(5) Rule 17a-5;
(6) Rule 17a-11; and
(7) Rule 17a-13.
(c) The exemption pertaining to Rule 10b-10 is extended until the
compliance date set forth in any final rules regarding trade
acknowledgement and verification of security-based swap transactions.
(d) The exemption pertaining to Regulation ATS, 17 CFR 242.300 et
seq., is extended until the compliance date set forth in any final
rules regarding the registration of security-based swap execution
facilities.
(e) The following exemptions are extended until the later of the
compliance dates set forth in (i) any final rules regarding capital,
margin and segregation requirements for security-based swap dealers and
major security-based swap participants and (ii) any final rules
regarding recordkeeping and reporting requirements for security-based
swap dealers and major security-based swap participants:
(1) Exemptions pertaining to the ``broker'' registration
requirements of section 15(a)(1) of the Exchange Act, and the other
requirements of the Exchange Act and the rules and regulations
thereunder that apply to a broker that is not registered with the
Commission, solely in connection with broker activities involving
security-based swaps, and
(2) Exemptions pertaining to the ``dealer'' registration
requirements of section 15(a)(1) of the Exchange Act, and the other
requirements of the

[[Page 7735]]

Exchange Act and the rules and regulations thereunder that apply to a
dealer that is not registered with the Commission, solely in connection
with dealing activities involving security-based swaps with
counterparties that meet the definition of eligible contract
participant as set forth in section 1a(12) of the Commodity Exchange
Act.

By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2014-02834 Filed 2-7-14; 8:45 am]
BILLING CODE 8011-01-P

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