Order Extending Temporary Exemptions From Exchange Act Section 8 and Exchange Act Rules 8c-1, 10b-16, 15a-1, 15c2-1 and 15c2-5 in Connection With the Revision of the Definition of “Security” To Encompass Security-Based Swaps, 2763-2766 [2020-00568]

Download as PDF Federal Register / Vol. 85, No. 11 / Thursday, January 16, 2020 / Notices under the PRA unless it displays a currently valid OMB control number. The public may view background documentation for this information collection at the following website: www.reginfo.gov. Comments should be directed to: (i) Desk Officer for the Securities and Exchange Commission, Office of Information and Regulatory Affairs, Office of Management and Budget, Room 10102, New Executive Office Building, Washington, DC 20503, or by sending an email to: Lindsay.M.Abate@omb.eop.gov; and (ii) David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/o Cynthia Roscoe, 100 F Street NE, Washington, DC 20549, or by sending an email to: PRA_Mailbox@sec.gov. Comments must be submitted to OMB within 30 days of this notice. Dated: January 10, 2020. J. Matthew DeLesDernier, Assistant Secretary. [FR Doc. 2020–00559 Filed 1–15–20; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–87943; File No. S7–27–11] Order Extending Temporary Exemptions From Exchange Act Section 8 and Exchange Act Rules 8c– 1, 10b–16, 15a–1, 15c2–1 and 15c2–5 in Connection With the Revision of the Definition of ‘‘Security’’ To Encompass Security-Based Swaps January 10, 2020. khammond on DSKJM1Z7X2PROD with NOTICES I. Introduction The Securities and Exchange Commission (‘‘Commission’’) is extending until November 5, 2020, temporary exemptions from Section 8 1 of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) and from Exchange Act Rules 8c–1, 15c2–1, 10b–16, 15c2– 5, and 15a–1 2 in connection with the revision of the definition of ‘‘security’’ to encompass security-based swaps. The Commission is granting this nine-month extension because it believes the temporary exemptions from these provisions warrant further consideration to take into account the finalized regulatory regime for security-based swap dealers and major security-based swap participants, as well as the 1 15 U.S.C. 78h. CFR 240.8c–1, 240.15c2–1, 240.10b–16, 240.15c2–5 and 240.15a–1. 2 17 VerDate Sep<11>2014 17:49 Jan 15, 2020 Jkt 250001 compliance date for registration of those entities.3 These and other temporary exemptions were originally provided by the Commission in 2011 and periodically extended by the Commission, most recently in January 2019.4 The remainder of the temporary exemptions extended in January 2019, and not extended in this Order, will expire on February 5, 2020.5 3 Because the Commission ultimately may determine not to provide permanent exemptions for security-based swaps from one or more of these provisions, during the extension market participants may wish to consider how they would design and implement appropriate compliance measures and controls. 4 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 (July 1, 2011), 76 FR 39927 (July 7, 2011) (‘‘2011 Exchange Act Exemptive Order’’); see also Further Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and ‘‘Security-Based Swap Agreement’’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping, Exchange Act Release No. 67453 (July 18, 2012), 77 FR 48207 (Aug. 13, 2012) (extending the expiration date of the temporary exemptions to February 11, 2013); 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) (extending the expiration date of the temporary exemptions to February 11, 2014); 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. 71485 (Feb. 5, 2014), 79 FR 7731 (Feb. 10, 2014) (‘‘2014 Extension Order’’) (extending the expiration date for certain temporary exemptions to February 5, 2017); Order Extending Certain Temporary Exemptions Under the Securities Exchange Act of 1934 in Connection With the Revision of the Definition of ‘‘Security’’ To Encompass Security-Based Swaps and Request for Comment, Exchange Act Release No. 79833 (Jan. 18, 2017), 82 FR 8467 (Jan. 25, 2017) (extending the expiration date for certain temporary exemptions to February 5, 2018); Order Extending Until February 5, 2019 Certain Temporary Exemptions under the Securities Exchange Act of 1934 in Connection with the Pending Revision of the Definition of ‘‘Security’’ to Encompass Security-Based Swaps and Request for Comment, Exchange Act Release No. 82626 (Feb. 2, 2018), 83 FR 5665 (Feb. 18, 2018) (‘‘2018 Extension Order’’) (extending the expiration date for certain temporary exemptions to February 5, 2019); Order Granting a Limited Exemption from the Exchange Act Definition of ‘‘Penny Stock’’ for Security-Based Swap Transactions between Eligible Contract Participants; Granting a Limited Exemption from the Exchange Act Definition of ‘‘Municipal Securities’’ for Security-Based Swaps; and Extending Certain Temporary Exemptions under the Exchange Act in Connection with the Revision of the Definition of ‘‘Security’’ to Encompass Security-Based Swaps, Exchange Act Release No. 84991 (Jan. 25, 2019), 84 FR 863 (Jan. 31, 2019) (‘‘January 2019 Extension Order’’) (extending the expiration date for certain temporary exemptions to February 5, 2020). 5 See January 2019 Extension Order, 84 FR at 864–65. PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 2763 II. Discussion A. Background Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act 6 amended the definition of ‘‘security’’ under the Exchange Act to expressly encompass security-based swaps.7 The expansion of the definition of the term ‘‘security’’ to include security-based swaps had the effect of changing the scope of the Exchange Act regulatory provisions that apply to security-based swaps and, in doing so, raised certain complex questions that required further consideration. In July 2011, the Commission issued an order (the ‘‘2011 Exchange Act Exemptive Order’’), which granted two relevant temporary exemptions from compliance with certain provisions of the Exchange Act, and the rules and regulations thereunder. First, the Commission granted to any person who meets the definition of ‘‘eligible contract participant’’ set forth in Section 1a(12) of the Commodity Exchange Act as in effect on July 20, 2010 (i.e., the day prior to the date the Dodd-Frank Act was signed into law) and who is not a registered broker or dealer 8 or a selfregulatory organization 9 a temporary exemption from certain provisions of the Exchange Act, and the rules and regulations thereunder, solely in connection with the person’s activities involving security-based swaps.10 Second, the Commission granted to a broker or dealer registered under Section 15(b) of the Exchange Act (other than a broker or dealer registered under Section 15(b)(11) of the Exchange Act), a temporary exemption from certain provisions of the Exchange Act, and the 6 The Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111–203, 124 Stat. 1376 (2010) (‘‘Dodd-Frank Act’’). 7 See Section 761(a)(2) of the Dodd-Frank Act (amending Section 3(a)(10) of the Exchange Act, 15 U.S.C. 78c(a)(10)). The provisions of Title VII generally became effective on July 16, 2011 (360 days after the enactment of the Dodd-Frank Act) (the ‘‘Effective Date’’), unless a provision required a rulemaking, in which case the provision would go into effect ‘‘not less than’’ 60 days after publication of the related final rules in the Federal Register or on July 16, 2011, whichever is later. See Section 774 of the Dodd-Frank Act, 15 U.S.C. 77b note. 8 This temporary exemption is available to a broker or dealer registered under Section 15(b)(11) of the Exchange Act who meets the other eligibility criteria for this relief. See 2011 Exchange Act Exemptive Order, 76 FR at 39938. 9 This temporary exemption is available to a selfregulatory organization in limited circumstances. See 2011 Exchange Act Exemptive Order, 76 FR at 39938–39. 10 See 2011 Exchange Act Exemptive Order, 76 FR at 39938–39. E:\FR\FM\16JAN1.SGM 16JAN1 2764 Federal Register / Vol. 85, No. 11 / Thursday, January 16, 2020 / Notices rules and regulations thereunder, solely with respect to security-based swaps.11 The overall approach of the 2011 Exchange Act Exemptive Order was directed toward maintaining the status quo during the implementation process for the Dodd-Frank Act.12 In the 2011 Exchange Act Exemptive Order, the Commission stated that it would accomplish this ‘‘by preserving the application of particular Exchange Act requirements that already are applicable in connection with instruments that will be ‘security-based swaps’ following the Effective Date [of the Dodd-Frank Act], but deferring the applicability of additional Exchange Act requirements in connection with those instruments explicitly being defined as ‘securities’ as of the Effective Date.’’ 13 khammond on DSKJM1Z7X2PROD with NOTICES 1. 2014 Extension Order In 2014, the Commission extended the expiration dates for the temporary exemptions in the 2011 Exchange Act Exemptive Order.14 The Commission distinguished between: (1) The temporary exemptions related to pending security-based swap rulemakings (‘‘Linked Temporary Exemptions’’), the expiration dates for which were extended to the compliance dates for the specific rulemakings to which they were ‘‘linked’’; and (2) the temporary exemptions that generally were not directly related to a specific security-based swap rulemaking (‘‘Unlinked Temporary Exemptions’’), the expiration date for which was extended to the earlier of three years following the effective date of the 2014 Extension Order (i.e., February 5, 2017) or such time that the Commission issues an order or rule determining whether continuing exemptive relief is appropriate for security-based swaps 11 See 2011 Exchange Act Exemptive Order, 76 FR at 39939. The 2011 Exchange Act Exemptive Order did not provide exemptive relief for any provisions or rules prohibiting fraud, manipulation, or insider trading (other than prophylactic reporting or recordkeeping requirements such as the confirmation requirements of Exchange Act Rule 10b-10). In addition, the 2011 Exchange Act Exemptive Order did not affect the Commission’s investigative, enforcement, and procedural authority related to those provisions and rules. See 2011 Exchange Act Exemptive Order, 76 FR at 39931 n.34. The 2011 Exchange Act Exemptive Order also did not address Sections 12, 13, 14, 15(d), 16, and 17A of the Exchange Act and the rules and regulations thereunder. 12 See 2011 Exchange Act Exemptive Order, 76 FR at 39929. 13 2011 Exchange Act Exemptive Order, 76 FR at 39929. Under the 2011 Exchange Act Exemptive Order, instruments that (before the Effective Date) were security-based swap agreements and (after the Effective Date) constituted security-based swaps were still subject to the application of those Exchange Act provisions. See 2011 Exchange Act Exemptive Order, 76 FR at 39930 nn.24–25. 14 See 2014 Extension Order, 79 FR at 7734–35. VerDate Sep<11>2014 17:49 Jan 15, 2020 Jkt 250001 with respect to any such Unlinked Temporary Exemptions.15 This approach was designed to provide the Commission with flexibility, while its Dodd-Frank Act rulemaking is still in progress, to determine whether continuing relief should be provided for any of the Unlinked Temporary Exemptions.16 2. 2018 Extension Order and January 2019 Extension Order In 2018, the Commission extended the expiration date of the Unlinked Temporary Exemptions until February 5, 2019.17 The Commission also requested comment on whether 15 See 2014 Extension Order, 79 FR at 7732–35. 2014 Extension Order, 79 FR at 7731. The 2014 Extension Order referred to the temporary exemptions provided for in the 2011 Exchange Act Exemptive Order as the ‘‘Expiring Temporary Exemptions’’ and noted that the 2011 Exchange Act Exemptive Order generally provided for the following exemptions from the Exchange Act: ‘‘(a) temporary exemptions in connection with securitybased swap activity by certain ‘eligible contract participants’; and (b) temporary exemptions specific to security-based swap activities by registered brokers and dealers.’’ The 2014 Extension Order identified the Linked Temporary Exemptions as those Expiring Temporary Exemptions related to: (1) Capital and margin requirements applicable to a broker or dealer (Exchange Act Sections 7 and 15(c)(3), Regulation T, and Exchange Act Rules 15c3–1, 15c3–3, and 15c3–4); (2) recordkeeping requirements applicable to a broker or dealer (Exchange Act Sections 17(a) and 17(b) and Exchange Act Rules 17a–3, 17a–4, 17a–5, 17a–11, and 17a–13); (3) registration requirements under Exchange Act Section 15(a)(1), 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; (4) Exchange Act Rule 10b–10; and (5) Regulation ATS. The remaining Expiring Temporary Exemptions are the Unlinked Temporary Exemptions. As applicable, the Commission extended the Linked Temporary Exemptions until the compliance date for pending rulemakings concerning: Capital, margin, and segregation requirements for security-based swap dealers and major security-based swap participants; recordkeeping and reporting requirements for security-based swap dealers and major securitybased swap participants; security-based swap trade acknowledgement and verification; and registration requirements for security-based swap execution facilities. The Linked Temporary Exemptions are not addressed in this order and have been, or will be, separately considered in connection with the related security-based swap rulemakings. See, e.g., Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major SecurityBased Swap Participants and Capital and Segregation Requirements for Broker-Dealers, Exchange Act Release No. 86175 (June 21, 2019), 84 FR 43872, 43955–56 (Aug. 22, 2019); Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers, Exchange Act Release No. 87005 (Sept. 19 2019), 84 FR 68550, 68601–02 (Dec. 16, 2019); Trade Acknowledgement and Verification of Security-Based Swap Transactions, Exchange Act Release No. 78011 (June 8, 2016), 81 FR 39807, 39824–25 n.189 (June 17, 2016). 17 See 2018 Extension Order. 16 See PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 continuing exemptive relief was necessary beyond February 5, 2019.18 The Commission received four letters from two different commenters in response.19 One of these comments requested that the Commission make permanent a limited number of the Unlinked Temporary Exemptions.20 The commenter also requested an additional twelve-month transition period before the expiration of the remaining Unlinked Temporary Exemptions.21 The commenter argued that market participants would use the additional time to ‘‘further analyze the applicability of [Exchange Act provisions and rules] to their [securitybased swap] business and design and implement appropriate compliance measures, including, where relevant, controls designed to prevent or detect activity that might potentially trigger these provisions.’’ 22 In response, the Commission provided limited 18 Comments received are available at https:// www.sec.gov/comments/s7-27-11/s72711.shtml. 19 See letter from Kyle Brandon, Managing Director, SIFMA, dated Nov. 8, 2018 (‘‘SIFMA November 2018 Letter’’) (requesting that the Commission further extend the Unlinked Temporary Exemptions, and also requesting certain permanent exemptive and other relief); supplemental letter from Kyle Brandon, Managing Director, SIFMA, dated Dec. 20, 2018 (‘‘SIFMA December 2018 Letter’’) (supplementing the SIFMA November 2018 Letter with additional detail regarding the Unlinked Temporary Exemptions and recommending a twelve-month transition period before expiration of any Unlinked Temporary Exemptions); see also letters from Walt L. Lukken, President and Chief Executive Officer, Futures Industry Association, dated Nov. 18 and Nov. 29, 2018 (each expressing support for codifying the exemptions for security-based swaps from inapplicable securities rules). 20 See SIFMA December 2018 Letter at 3 (request for exemption from the definition of ‘‘penny stock’’); SIFMA December 2018 Letter at 3–4 (request for guidance regarding the definition of ‘‘municipal securities’’); SIFMA December 2018 Letter at 3–4 (request for guidance regarding the definition of ‘‘government securities’’); SIFMA December 2018 Letter at 4–5 (request for exemption from fees under Section 31 of the Exchange Act); SIFMA December 2018 Letter at 5 (request for exemption from hypothecation requirements); SIFMA December 2018 Letter at 5–6 (request for exemption from broker-dealer disclosure requirements relating to extensions of credit); SIFMA December 2018 Letter at 6 (request for exemption from qualification requirements for personnel of broker-dealers); SIFMA December 2018 Letter at 6 (request for exemption from fingerprinting requirements for personnel of brokerdealers); SIFMA December 2018 Letter at 6–7 (request for exemption to permit OTC derivatives dealers to transact in centrally cleared or listed security-based swaps); SIFMA December 2018 Letter at 7 (request for exemption to permit exchange members to engage in security-based swap transactions without losing an existing limited exemption from the requirement to be a member of a national securities association); SIFMA December 2018 Letter at 7 (request for exemption from audit and compensation committee requirements). 21 See SIFMA December 2018 Letter at 1, 7. 22 See SIFMA December 2018 Letter at 7. E:\FR\FM\16JAN1.SGM 16JAN1 Federal Register / Vol. 85, No. 11 / Thursday, January 16, 2020 / Notices exemptions from the definition of ‘‘penny stock’’ in Section 3(a)(51) of the Exchange Act and Rule 3a51–1 for transactions in security-based swaps between eligible contract participants and from the definition of ‘‘municipal securities’’ in Section 3(a)(29) of the Exchange Act for security-based swaps.23 The Commission also extended the Unlinked Temporary Exemptions until February 5, 2020, providing a twelve-month transition period to allow market participants adequate time to design and implement appropriate compliance measures and controls.24 On January 8, 2020, the Commission received a letter from the same commenter supplementing its earlier request.25 The commenter updated its requests to make permanent the three aspects of the Unlinked Temporary Exemptions: (1) Limitations on hypothecation of securities carried for the account of a customer in Section 8 of the Exchange Act and in Exchange Act Rules 8c–1 and 15c2–1,26 (2) brokerdealer disclosure requirements relating to extensions of credit in Exchange Act Rules 10b–16 and 15c2–5,27 and (3) certain limitations on an OTC derivatives dealer’s activities in khammond on DSKJM1Z7X2PROD with NOTICES 23 See January 2019 Extension Order, 84 FR at 867. In response to the commenter’s request, the Commission noted that the Unlinked Temporary Exemptions did not include an exemption from the definition of ‘‘government securities’’ in Section 3(a)(42) of the Exchange Act and noted that the Exchange Act does not permit the Commission to provide such relief. The Commission further noted that Section 31 fees do not currently apply to security-based swaps but that it may revisit the appropriateness of exempting security-based swaps from Section 31 fees at the time such fees begin to apply. See January 2019 Extension Order, 84 FR at 866 & n.40. 24 See January 2019 Extension Order, 84 FR at 866. 25 See supplemental letter from Kyle Brandon, Managing Director, SIFMA, dated Jan. 8, 2020 (‘‘SIFMA January 2020 Letter’’) (requesting permanent exemptive relief for security basedswaps from Section 8 of the Exchange Act and Exchange Act Rules 8c–1, 10b–16, 15a–1, 15c2–1 and 15c2–5 and withdrawing previous requests to make permanent certain other aspects of the Unlinked Temporary Exemptions, including those relating to Sections 15(b)(7), 17(f)(2), and 31 of the Exchange Act and Exchange Act Rules 10A–3, 10C– 1 15b7–1, 15b9–1, and 17f–2). 26 See SIFMA January 2020 Letter at 3–4); SIFMA December 2018 Letter at 5; Exchange Act Section 8, 15 U.S.C. 78h; Exchange Act Rule 8c–1, 17 CFR 240.8c–1; Exchange Act Rule 15c2–1, 17 CFR 240.15c2–1. Section 8 of the Exchange Act and Exchange Act Rules 8c–1 and 15c2–1 limit a brokerdealer’s ability to hypothecate securities carried for the account of a customer. 27 See SIFMA January 2020 Letter at 4; SIFMA December 2018 Letter at 5–6; Exchange Act Rule 10b–16, 17 CFR 240.10b–16; Exchange Act Rule 15c2–5, 17 CFR 240.15c2–5. Exchange Act Rules 10b–16 and 15c2–5 govern the disclosures that a broker-dealer must provide to customers to whom they extend credit. VerDate Sep<11>2014 17:49 Jan 15, 2020 Jkt 250001 Exchange Act Rule 15a–1.28 In the alternative, the commenter requested that the Commission extend the Unlinked Temporary Exemptions relating to these requests for an additional twelve months so that the Commission may further consider the requests.29 The commenter also confirmed that it was no longer requesting additional extensions for any other Unlinked Temporary Exemptions.30 B. Temporary Exemptions The Commission has finalized a majority of the rulemakings under Title VII of the Dodd-Frank Act.31 Specifically, the Commission has finalized the registration and regulatory regime for security-based swap dealers and major security-based swap participants and set the compliance date for registration of those entities (‘‘Registration Compliance Date’’). The Commission believes that it would be appropriate to provide market participants limited additional time to consider the impact of the expiration of the Unlinked Temporary Exemptions, 28 See SIFMA January 2020 Letter at 4–5 (requesting relief to permit OTC derivatives dealers to transact in centrally cleared or listed securitybased swaps); SIFMA December 2018 Letter at 6– 7; Exchange Act Rule 15a–1, 17 CFR 240.15a–1. Exchange Act Rule 15a–1 limits an OTC derivatives dealer’s ability to engage in dealer activities in listed instruments and in fungible instruments that are standardized as to their material economic terms. 29 See SIFMA January 2020 Letter at 2–3. 30 See SIFMA January 2020 Letter at 5. 31 See, e.g., Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, Exchange Act Release No. 74244 (Feb. 11, 2015), 80 FR 14563 (Mar. 19, 2015); Security-Based Swap Data Repository Registration, Duties, and Core Principles, Exchange Act Release No. 74246 (Feb. 11, 2015), 80 FR 14437 (Mar. 19, 2015); Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, Exchange Act Release No. 75611 (Aug. 5, 2015), 80 FR 48963 (Aug. 14, 2015); Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, Exchange Act Release No. 78321 (July 14, 2016), 81 FR 53545 (Aug. 12, 2016); Applications by SecurityBased Swap Dealers or Major Security-Based Swap Participants for Statutorily Disqualified Associated Person To Effect or Be Involved in Effecting Security-Based Swaps, Exchange Act Release No. 84858 (Dec. 19, 2018), 84 FR 4906 (Feb. 19, 2019); Capital, Margin, and Segregation Requirements for Security-Based Swap Dealers and Major SecurityBased Swap Participants and Capital and Segregation Requirements for Broker-Dealers, Exchange Act Release No. 86175 (June 21, 2019), 84 FR 43872 (Aug. 22, 2019); Recordkeeping and Reporting Requirements for Security-Based Swap Dealers, Major Security-Based Swap Participants, and Broker-Dealers, Exchange Act Release No. 87005 (Sept. 19, 2019), 84 FR 68550 (Dec. 16, 2019); Rule Amendments and Guidance Addressing CrossBorder Application of Certain Security-Based Swap Requirements, Exchange Act Release No. 87780 (Dec. 18, 2019). PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 2765 with respect to the commenter’s three remaining requests. The Commission is extending, for a further nine months, the Unlinked Temporary Exemptions that relate to three requests for permanent exemptions for security-based swaps from limitations on hypothecation of securities carried for the account of a customer in Section 8 of the Exchange Act and in Exchange Act Rules 8c–1 and 15c2–1, from broker-dealer disclosure requirements relating to extensions of credit in Exchange Act Rules 10b–16 and 15c2–5, and from certain limitations on an OTC derivatives dealer’s activities in Exchange Act Rule 15a–1. This additional time extends the transition period for the Exchange Act provisions and rules relevant to these three requests to allow time to further consider the requests taking into account the finalized regulatory regime for security-based swap dealers and major security-based swap participants, as well as the compliance date for registration of those entities.32 The Commission believes that an additional nine months will provide sufficient time for this further consideration. The Commission is not extending any other of the Unlinked Temporary Exemptions.33 The Commission continues to believe that market participants will have had adequate time to consider the impact of the expiration of the remainder of the Unlinked Temporary Exemptions when they expire on February 5, 2020. III. Commission Findings Accordingly, pursuant to its authority under Section 36 of the Exchange Act, the Commission finds that it is necessary or appropriate in the public interest, and consistent with the protection of investors, to extend for a period of nine months, until November 5, 2020, the Unlinked Temporary Exemptions from Section 8 of the Exchange Act and from Exchange Act Rules 8c–1, 15c2–1, 10b–16, 15c2–5, and 15a–1, in connection with the revision of the Exchange Act definition of ‘‘security’’ to encompass securitybased swaps, in each case contained in the 2011 Exchange Act Exemptive Order and extended in the January 2019 Extension Order. This extension will allow time to further consider the requests taking into account the finalized regulatory regime for securitybased swap dealers and major securitybased swap participants, as well as the 32 See note 3, supra. always, the Commission may, however, consider tailored relief in the future under particular facts and circumstances. 33 As E:\FR\FM\16JAN1.SGM 16JAN1 2766 Federal Register / Vol. 85, No. 11 / Thursday, January 16, 2020 / Notices compliance date for the registration of those entities. The remainder of the Unlinked Temporary Exemptions will expire on February 5, 2020, as provided in the January 2019 Extension Order. * * * * * IV. Conclusion It is hereby ordered, pursuant to Section 36 of the Exchange Act, that the Unlinked Temporary Exemptions from Section 8 of the Exchange Act and from Exchange Act Rules 8c–1, 15c2–1, 10b– 16, 15c2–5 and 15a–1 in connection with the revision of the Exchange Act definition of ‘‘security’’ to encompass security-based swaps, in each case contained in the 2011 Exchange Act Exemptive Order and extended in the January 2019 Extension Order, are extended until November 5, 2020. By the Commission. Vanessa A. Countryman, Secretary. [FR Doc. 2020–00568 Filed 1–15–20; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–87942; File No. SR– EMERALD–2020–02] January 10, 2020. khammond on DSKJM1Z7X2PROD with NOTICES Pursuant Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on January 10, 2020, MIAX Emerald, LLC (‘‘MIAX Emerald’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing a proposal to amend, reorganize and enhance its U.S.C. 78s(b)(1). CFR 240.19b–4. VerDate Sep<11>2014 17:49 Jan 15, 2020 Jkt 250001 In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 1. Purpose Self-Regulatory Organizations; MIAX Emerald, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend, Reorganize and Enhance Its Membership, Registration and Qualification Rules and Consolidate These Rules Into New Chapter XIX Registration, Qualification and Continuing Education 2 17 II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change SECURITIES AND EXCHANGE COMMISSION 1 15 membership, registration and qualification rules and to make conforming changes to certain other rules. The text of the proposed rule change is available on the Exchange’s website at https://www.miaxoptions.com/rulefilings/emerald at MIAX Emerald’s principal office, and at the Commission’s Public Reference Room. The Exchange proposes to reorganize and enhance its membership, registration and qualification rules, make conforming changes to certain other rules, and organize the proposed changes into a new chapter of rules in the MIAX Emerald Rulebook. All of the proposed rules and changes to existing Exchange rules are based on existing rules of other options exchanges.3 The proposed rules are intended to amend, reorganize and enhance the Exchange’s membership, registration and qualification requirements rules to align with recent similar changes by the Exchange’s affiliate, MIAX,4 as well as the Nasdaq Stock Market and FINRA. MIAX Emerald proposes to adopt new Chapter XIX to the Exchange’s rules. 3 See Miami International Securities Exchange, LLC (‘‘MIAX’’) Rules, Chapter XIX, Registration, Qualification and Continuing Education; The Nasdaq Stock Market LLC (‘‘Nasdaq Stock Market’’) Rules, General 9, Regulation; Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) Rules, Rule 1000, Member Application and Associated Person Registration. 4 See Securities Exchange Act Release No. 87830 (December 20, 2019), 84 FR 72025 (December 30, 2019) (Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend, Reorganize and Enhance Its Membership, Registration and Qualification Rules and Consolidate These Rules Into New Chapter XIX Registration, Qualification and Continuing Education) (SR–MIAX–2019–50). PO 00000 Frm 00074 Fmt 4703 Sfmt 4703 Overview The Exchange adopted registration requirements to ensure that associated persons 5 attain and maintain specified levels of competence and knowledge pertinent to their function. In general, the Exchange’s current rules require that persons engaged in a Member’s 6 securities business who are to function as representatives 7 or principals 8 register with the Exchange in each category of registration appropriate to their functions by passing one or more qualification examinations 9 and exempt specified associated persons from the registration requirements.10 They also prescribe ongoing continuing education requirements for registered persons.11 The Exchange proposes to amend, reorganize and enhance its rules regarding registration, qualification examinations and continuing education, as described below. In 2017, the Commission approved a Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) proposed rule 5 The term ‘‘associated person’’ or ‘‘person associated with a Member’’ means any partner, officer, director, or branch manager of a Member (or any person occupying a similar status or performing similar functions), any person directly or indirectly controlling, controlled by, or under common control with a Member, or any employee of a Member. See Exchange Rule 100. In accordance with other proposed changes in this filing, and as further described below, the Exchange proposes to amend the terms ‘‘associated person’’ or ‘‘person associated with a Member.’’ 6 The term ‘‘Member’’ means an individual or organization approved to exercise the trading rights associated with a Trading Permit. Members are deemed ‘‘members’’ under the Exchange Act. See Exchange Rule 100. 7 A ‘‘representative’’ is any person associated with a Member, including assistant officers other than principals, who is engaged in the Member’s securities business, such as supervision, solicitation, conduct of business in securities or the training of persons associated with a Member for any of these functions. See proposed Exchange Rule 1901. 8 A ‘‘principal’’ is any person associated with a Member, including, but not limited to, sole proprietor, officer, partner, manager of office of supervisory jurisdiction, director or other person occupying a similar status or performing similar functions, who is actively engaged in the management of the Member’s securities business, such as supervision, solicitation, conduct of business in securities or the training of persons associated with a Member for any of these functions. Such persons shall include, among other persons, a Member’s chief executive officer and chief financial officer (or equivalent officers). A ‘‘principal’’ also includes any other person associated with a Member who is performing functions or carrying out responsibilities that are required to be performed or carried out by a principal under Exchange rules. See proposed Exchange Rule 1901. 9 See proposed Exchange Rule 1901, Registration Categories, and Exchange Rule 1302, Registration of Representatives. 10 See proposed Exchange Rule 1902, Associated Persons Exempt from Registration. 11 See proposed Exchange Rule 1903, Continuing Education Requirements. E:\FR\FM\16JAN1.SGM 16JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 11 (Thursday, January 16, 2020)]
[Notices]
[Pages 2763-2766]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00568]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87943; File No. S7-27-11]


Order Extending Temporary Exemptions From Exchange Act Section 8 
and Exchange Act Rules 8c-1, 10b-16, 15a-1, 15c2-1 and 15c2-5 in 
Connection With the Revision of the Definition of ``Security'' To 
Encompass Security-Based Swaps

January 10, 2020.

I. Introduction

    The Securities and Exchange Commission (``Commission'') is 
extending until November 5, 2020, temporary exemptions from Section 8 
\1\ of the Securities Exchange Act of 1934 (``Exchange Act'') and from 
Exchange Act Rules 8c-1, 15c2-1, 10b-16, 15c2-5, and 15a-1 \2\ in 
connection with the revision of the definition of ``security'' to 
encompass security-based swaps. The Commission is granting this nine-
month extension because it believes the temporary exemptions from these 
provisions warrant further consideration to take into account the 
finalized regulatory regime for security-based swap dealers and major 
security-based swap participants, as well as the compliance date for 
registration of those entities.\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78h.
    \2\ 17 CFR 240.8c-1, 240.15c2-1, 240.10b-16, 240.15c2-5 and 
240.15a-1.
    \3\ Because the Commission ultimately may determine not to 
provide permanent exemptions for security-based swaps from one or 
more of these provisions, during the extension market participants 
may wish to consider how they would design and implement appropriate 
compliance measures and controls.
---------------------------------------------------------------------------

    These and other temporary exemptions were originally provided by 
the Commission in 2011 and periodically extended by the Commission, 
most recently in January 2019.\4\ The remainder of the temporary 
exemptions extended in January 2019, and not extended in this Order, 
will expire on February 5, 2020.\5\
---------------------------------------------------------------------------

    \4\ 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 (July 1, 2011), 76 FR 39927 (July 7, 
2011) (``2011 Exchange Act Exemptive Order''); see also Further 
Definition of ``Swap,'' ``Security-Based Swap,'' and ``Security-
Based Swap Agreement''; Mixed Swaps; Security-Based Swap Agreement 
Recordkeeping, Exchange Act Release No. 67453 (July 18, 2012), 77 FR 
48207 (Aug. 13, 2012) (extending the expiration date of the 
temporary exemptions to February 11, 2013); 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) 
(extending the expiration date of the temporary exemptions to 
February 11, 2014); 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. 71485 (Feb. 5, 
2014), 79 FR 7731 (Feb. 10, 2014) (``2014 Extension Order'') 
(extending the expiration date for certain temporary exemptions to 
February 5, 2017); Order Extending Certain Temporary Exemptions 
Under the Securities Exchange Act of 1934 in Connection With the 
Revision of the Definition of ``Security'' To Encompass Security-
Based Swaps and Request for Comment, Exchange Act Release No. 79833 
(Jan. 18, 2017), 82 FR 8467 (Jan. 25, 2017) (extending the 
expiration date for certain temporary exemptions to February 5, 
2018); Order Extending Until February 5, 2019 Certain Temporary 
Exemptions under the Securities Exchange Act of 1934 in Connection 
with the Pending Revision of the Definition of ``Security'' to 
Encompass Security-Based Swaps and Request for Comment, Exchange Act 
Release No. 82626 (Feb. 2, 2018), 83 FR 5665 (Feb. 18, 2018) (``2018 
Extension Order'') (extending the expiration date for certain 
temporary exemptions to February 5, 2019); Order Granting a Limited 
Exemption from the Exchange Act Definition of ``Penny Stock'' for 
Security-Based Swap Transactions between Eligible Contract 
Participants; Granting a Limited Exemption from the Exchange Act 
Definition of ``Municipal Securities'' for Security-Based Swaps; and 
Extending Certain Temporary Exemptions under the Exchange Act in 
Connection with the Revision of the Definition of ``Security'' to 
Encompass Security-Based Swaps, Exchange Act Release No. 84991 (Jan. 
25, 2019), 84 FR 863 (Jan. 31, 2019) (``January 2019 Extension 
Order'') (extending the expiration date for certain temporary 
exemptions to February 5, 2020).
    \5\ See January 2019 Extension Order, 84 FR at 864-65.
---------------------------------------------------------------------------

II. Discussion

A. Background

    Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act \6\ amended the definition of ``security'' under the 
Exchange Act to expressly encompass security-based swaps.\7\ The 
expansion of the definition of the term ``security'' to include 
security-based swaps had the effect of changing the scope of the 
Exchange Act regulatory provisions that apply to security-based swaps 
and, in doing so, raised certain complex questions that required 
further consideration.
---------------------------------------------------------------------------

    \6\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010) (``Dodd-Frank Act'').
    \7\ See Section 761(a)(2) of the Dodd-Frank Act (amending 
Section 3(a)(10) of the Exchange Act, 15 U.S.C. 78c(a)(10)). The 
provisions of Title VII generally became effective on July 16, 2011 
(360 days after the enactment of the Dodd-Frank Act) (the 
``Effective Date''), unless a provision required a rulemaking, in 
which case the provision would go into effect ``not less than'' 60 
days after publication of the related final rules in the Federal 
Register or on July 16, 2011, whichever is later. See Section 774 of 
the Dodd-Frank Act, 15 U.S.C. 77b note.
---------------------------------------------------------------------------

    In July 2011, the Commission issued an order (the ``2011 Exchange 
Act Exemptive Order''), which granted two relevant temporary exemptions 
from compliance with certain provisions of the Exchange Act, and the 
rules and regulations thereunder. First, the Commission granted to any 
person who meets the definition of ``eligible contract participant'' 
set forth in Section 1a(12) of the Commodity Exchange Act as in effect 
on July 20, 2010 (i.e., the day prior to the date the Dodd-Frank Act 
was signed into law) and who is not a registered broker or dealer \8\ 
or a self-regulatory organization \9\ a temporary exemption from 
certain provisions of the Exchange Act, and the rules and regulations 
thereunder, solely in connection with the person's activities involving 
security-based swaps.\10\ Second, the Commission granted to a broker or 
dealer registered under Section 15(b) of the Exchange Act (other than a 
broker or dealer registered under Section 15(b)(11) of the Exchange 
Act), a temporary exemption from certain provisions of the Exchange 
Act, and the

[[Page 2764]]

rules and regulations thereunder, solely with respect to security-based 
swaps.\11\
---------------------------------------------------------------------------

    \8\ This temporary exemption is available to a broker or dealer 
registered under Section 15(b)(11) of the Exchange Act who meets the 
other eligibility criteria for this relief. See 2011 Exchange Act 
Exemptive Order, 76 FR at 39938.
    \9\ This temporary exemption is available to a self-regulatory 
organization in limited circumstances. See 2011 Exchange Act 
Exemptive Order, 76 FR at 39938-39.
    \10\ See 2011 Exchange Act Exemptive Order, 76 FR at 39938-39.
    \11\ See 2011 Exchange Act Exemptive Order, 76 FR at 39939. The 
2011 Exchange Act Exemptive Order did not provide exemptive relief 
for any provisions or rules prohibiting fraud, manipulation, or 
insider trading (other than prophylactic reporting or recordkeeping 
requirements such as the confirmation requirements of Exchange Act 
Rule 10b-10). In addition, the 2011 Exchange Act Exemptive Order did 
not affect the Commission's investigative, enforcement, and 
procedural authority related to those provisions and rules. See 2011 
Exchange Act Exemptive Order, 76 FR at 39931 n.34. The 2011 Exchange 
Act Exemptive Order also did not address Sections 12, 13, 14, 15(d), 
16, and 17A of the Exchange Act and the rules and regulations 
thereunder.
---------------------------------------------------------------------------

    The overall approach of the 2011 Exchange Act Exemptive Order was 
directed toward maintaining the status quo during the implementation 
process for the Dodd-Frank Act.\12\ In the 2011 Exchange Act Exemptive 
Order, the Commission stated that it would accomplish this ``by 
preserving the application of particular Exchange Act requirements that 
already are applicable in connection with instruments that will be 
`security-based swaps' following the Effective Date [of the Dodd-Frank 
Act], but deferring the applicability of additional Exchange Act 
requirements in connection with those instruments explicitly being 
defined as `securities' as of the Effective Date.'' \13\
---------------------------------------------------------------------------

    \12\ See 2011 Exchange Act Exemptive Order, 76 FR at 39929.
    \13\ 2011 Exchange Act Exemptive Order, 76 FR at 39929. Under 
the 2011 Exchange Act Exemptive Order, instruments that (before the 
Effective Date) were security-based swap agreements and (after the 
Effective Date) constituted security-based swaps were still subject 
to the application of those Exchange Act provisions. See 2011 
Exchange Act Exemptive Order, 76 FR at 39930 nn.24-25.
---------------------------------------------------------------------------

1. 2014 Extension Order

    In 2014, the Commission extended the expiration dates for the 
temporary exemptions in the 2011 Exchange Act Exemptive Order.\14\ The 
Commission distinguished between: (1) The temporary exemptions related 
to pending security-based swap rulemakings (``Linked Temporary 
Exemptions''), the expiration dates for which were extended to the 
compliance dates for the specific rulemakings to which they were 
``linked''; and (2) the temporary exemptions that generally were not 
directly related to a specific security-based swap rulemaking 
(``Unlinked Temporary Exemptions''), the expiration date for which was 
extended to the earlier of three years following the effective date of 
the 2014 Extension Order (i.e., February 5, 2017) or such time that the 
Commission issues an order or rule determining whether continuing 
exemptive relief is appropriate for security-based swaps with respect 
to any such Unlinked Temporary Exemptions.\15\ This approach was 
designed to provide the Commission with flexibility, while its Dodd-
Frank Act rulemaking is still in progress, to determine whether 
continuing relief should be provided for any of the Unlinked Temporary 
Exemptions.\16\
---------------------------------------------------------------------------

    \14\ See 2014 Extension Order, 79 FR at 7734-35.
    \15\ See 2014 Extension Order, 79 FR at 7732-35.
    \16\ See 2014 Extension Order, 79 FR at 7731. The 2014 Extension 
Order referred to the temporary exemptions provided for in the 2011 
Exchange Act Exemptive Order as the ``Expiring Temporary 
Exemptions'' and noted that the 2011 Exchange Act Exemptive Order 
generally provided for the following exemptions from the 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.''
    The 2014 Extension Order identified the Linked Temporary 
Exemptions as those Expiring Temporary Exemptions related to: (1) 
Capital and margin requirements applicable to a broker or dealer 
(Exchange Act Sections 7 and 15(c)(3), Regulation T, and Exchange 
Act Rules 15c3-1, 15c3-3, and 15c3-4); (2) recordkeeping 
requirements applicable to a broker or dealer (Exchange Act Sections 
17(a) and 17(b) and Exchange Act Rules 17a-3, 17a-4, 17a-5, 17a-11, 
and 17a-13); (3) registration requirements under Exchange Act 
Section 15(a)(1), 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; (4) Exchange 
Act Rule 10b-10; and (5) Regulation ATS. The remaining Expiring 
Temporary Exemptions are the Unlinked Temporary Exemptions.
    As applicable, the Commission extended the Linked Temporary 
Exemptions until the compliance date for pending rulemakings 
concerning: Capital, margin, and segregation requirements for 
security-based swap dealers and major security-based swap 
participants; recordkeeping and reporting requirements for security-
based swap dealers and major security-based swap participants; 
security-based swap trade acknowledgement and verification; and 
registration requirements for security-based swap execution 
facilities. The Linked Temporary Exemptions are not addressed in 
this order and have been, or will be, separately considered in 
connection with the related security-based swap rulemakings. See, 
e.g., Capital, Margin, and Segregation Requirements for Security-
Based Swap Dealers and Major Security-Based Swap Participants and 
Capital and Segregation Requirements for Broker-Dealers, Exchange 
Act Release No. 86175 (June 21, 2019), 84 FR 43872, 43955-56 (Aug. 
22, 2019); Recordkeeping and Reporting Requirements for Security-
Based Swap Dealers, Major Security-Based Swap Participants, and 
Broker-Dealers, Exchange Act Release No. 87005 (Sept. 19 2019), 84 
FR 68550, 68601-02 (Dec. 16, 2019); Trade Acknowledgement and 
Verification of Security-Based Swap Transactions, Exchange Act 
Release No. 78011 (June 8, 2016), 81 FR 39807, 39824-25 n.189 (June 
17, 2016).
---------------------------------------------------------------------------

2. 2018 Extension Order and January 2019 Extension Order
    In 2018, the Commission extended the expiration date of the 
Unlinked Temporary Exemptions until February 5, 2019.\17\ The 
Commission also requested comment on whether continuing exemptive 
relief was necessary beyond February 5, 2019.\18\ The Commission 
received four letters from two different commenters in response.\19\ 
One of these comments requested that the Commission make permanent a 
limited number of the Unlinked Temporary Exemptions.\20\ The commenter 
also requested an additional twelve-month transition period before the 
expiration of the remaining Unlinked Temporary Exemptions.\21\ The 
commenter argued that market participants would use the additional time 
to ``further analyze the applicability of [Exchange Act provisions and 
rules] to their [security-based swap] business and design and implement 
appropriate compliance measures, including, where relevant, controls 
designed to prevent or detect activity that might potentially trigger 
these provisions.'' \22\ In response, the Commission provided limited

[[Page 2765]]

exemptions from the definition of ``penny stock'' in Section 3(a)(51) 
of the Exchange Act and Rule 3a51-1 for transactions in security-based 
swaps between eligible contract participants and from the definition of 
``municipal securities'' in Section 3(a)(29) of the Exchange Act for 
security-based swaps.\23\ The Commission also extended the Unlinked 
Temporary Exemptions until February 5, 2020, providing a twelve-month 
transition period to allow market participants adequate time to design 
and implement appropriate compliance measures and controls.\24\
---------------------------------------------------------------------------

    \17\ See 2018 Extension Order.
    \18\ Comments received are available at https://www.sec.gov/comments/s7-27-11/s72711.shtml.
    \19\ See letter from Kyle Brandon, Managing Director, SIFMA, 
dated Nov. 8, 2018 (``SIFMA November 2018 Letter'') (requesting that 
the Commission further extend the Unlinked Temporary Exemptions, and 
also requesting certain permanent exemptive and other relief); 
supplemental letter from Kyle Brandon, Managing Director, SIFMA, 
dated Dec. 20, 2018 (``SIFMA December 2018 Letter'') (supplementing 
the SIFMA November 2018 Letter with additional detail regarding the 
Unlinked Temporary Exemptions and recommending a twelve-month 
transition period before expiration of any Unlinked Temporary 
Exemptions); see also letters from Walt L. Lukken, President and 
Chief Executive Officer, Futures Industry Association, dated Nov. 18 
and Nov. 29, 2018 (each expressing support for codifying the 
exemptions for security-based swaps from inapplicable securities 
rules).
    \20\ See SIFMA December 2018 Letter at 3 (request for exemption 
from the definition of ``penny stock''); SIFMA December 2018 Letter 
at 3-4 (request for guidance regarding the definition of ``municipal 
securities''); SIFMA December 2018 Letter at 3-4 (request for 
guidance regarding the definition of ``government securities''); 
SIFMA December 2018 Letter at 4-5 (request for exemption from fees 
under Section 31 of the Exchange Act); SIFMA December 2018 Letter at 
5 (request for exemption from hypothecation requirements); SIFMA 
December 2018 Letter at 5-6 (request for exemption from broker-
dealer disclosure requirements relating to extensions of credit); 
SIFMA December 2018 Letter at 6 (request for exemption from 
qualification requirements for personnel of broker-dealers); SIFMA 
December 2018 Letter at 6 (request for exemption from fingerprinting 
requirements for personnel of broker-dealers); SIFMA December 2018 
Letter at 6-7 (request for exemption to permit OTC derivatives 
dealers to transact in centrally cleared or listed security-based 
swaps); SIFMA December 2018 Letter at 7 (request for exemption to 
permit exchange members to engage in security-based swap 
transactions without losing an existing limited exemption from the 
requirement to be a member of a national securities association); 
SIFMA December 2018 Letter at 7 (request for exemption from audit 
and compensation committee requirements).
    \21\ See SIFMA December 2018 Letter at 1, 7.
    \22\ See SIFMA December 2018 Letter at 7.
    \23\ See January 2019 Extension Order, 84 FR at 867.
     In response to the commenter's request, the Commission noted 
that the Unlinked Temporary Exemptions did not include an exemption 
from the definition of ``government securities'' in Section 3(a)(42) 
of the Exchange Act and noted that the Exchange Act does not permit 
the Commission to provide such relief. The Commission further noted 
that Section 31 fees do not currently apply to security-based swaps 
but that it may revisit the appropriateness of exempting security-
based swaps from Section 31 fees at the time such fees begin to 
apply. See January 2019 Extension Order, 84 FR at 866 & n.40.
    \24\ See January 2019 Extension Order, 84 FR at 866.
---------------------------------------------------------------------------

    On January 8, 2020, the Commission received a letter from the same 
commenter supplementing its earlier request.\25\ The commenter updated 
its requests to make permanent the three aspects of the Unlinked 
Temporary Exemptions: (1) Limitations on hypothecation of securities 
carried for the account of a customer in Section 8 of the Exchange Act 
and in Exchange Act Rules 8c-1 and 15c2-1,\26\ (2) broker-dealer 
disclosure requirements relating to extensions of credit in Exchange 
Act Rules 10b-16 and 15c2-5,\27\ and (3) certain limitations on an OTC 
derivatives dealer's activities in Exchange Act Rule 15a-1.\28\ In the 
alternative, the commenter requested that the Commission extend the 
Unlinked Temporary Exemptions relating to these requests for an 
additional twelve months so that the Commission may further consider 
the requests.\29\ The commenter also confirmed that it was no longer 
requesting additional extensions for any other Unlinked Temporary 
Exemptions.\30\
---------------------------------------------------------------------------

    \25\ See supplemental letter from Kyle Brandon, Managing 
Director, SIFMA, dated Jan. 8, 2020 (``SIFMA January 2020 Letter'') 
(requesting permanent exemptive relief for security based-swaps from 
Section 8 of the Exchange Act and Exchange Act Rules 8c-1, 10b-16, 
15a-1, 15c2-1 and 15c2-5 and withdrawing previous requests to make 
permanent certain other aspects of the Unlinked Temporary 
Exemptions, including those relating to Sections 15(b)(7), 17(f)(2), 
and 31 of the Exchange Act and Exchange Act Rules 10A-3, 10C-1 15b7-
1, 15b9-1, and 17f-2).
    \26\ See SIFMA January 2020 Letter at 3-4); SIFMA December 2018 
Letter at 5; Exchange Act Section 8, 15 U.S.C. 78h; Exchange Act 
Rule 8c-1, 17 CFR 240.8c-1; Exchange Act Rule 15c2-1, 17 CFR 
240.15c2-1. Section 8 of the Exchange Act and Exchange Act Rules 8c-
1 and 15c2-1 limit a broker-dealer's ability to hypothecate 
securities carried for the account of a customer.
    \27\ See SIFMA January 2020 Letter at 4; SIFMA December 2018 
Letter at 5-6; Exchange Act Rule 10b-16, 17 CFR 240.10b-16; Exchange 
Act Rule 15c2-5, 17 CFR 240.15c2-5. Exchange Act Rules 10b-16 and 
15c2-5 govern the disclosures that a broker-dealer must provide to 
customers to whom they extend credit.
    \28\ See SIFMA January 2020 Letter at 4-5 (requesting relief to 
permit OTC derivatives dealers to transact in centrally cleared or 
listed security-based swaps); SIFMA December 2018 Letter at 6-7; 
Exchange Act Rule 15a-1, 17 CFR 240.15a-1. Exchange Act Rule 15a-1 
limits an OTC derivatives dealer's ability to engage in dealer 
activities in listed instruments and in fungible instruments that 
are standardized as to their material economic terms.
    \29\ See SIFMA January 2020 Letter at 2-3.
    \30\ See SIFMA January 2020 Letter at 5.
---------------------------------------------------------------------------

B. Temporary Exemptions

    The Commission has finalized a majority of the rulemakings under 
Title VII of the Dodd-Frank Act.\31\ Specifically, the Commission has 
finalized the registration and regulatory regime for security-based 
swap dealers and major security-based swap participants and set the 
compliance date for registration of those entities (``Registration 
Compliance Date''). The Commission believes that it would be 
appropriate to provide market participants limited additional time to 
consider the impact of the expiration of the Unlinked Temporary 
Exemptions, with respect to the commenter's three remaining requests.
---------------------------------------------------------------------------

    \31\ See, e.g., Regulation SBSR--Reporting and Dissemination of 
Security-Based Swap Information, Exchange Act Release No. 74244 
(Feb. 11, 2015), 80 FR 14563 (Mar. 19, 2015); Security-Based Swap 
Data Repository Registration, Duties, and Core Principles, Exchange 
Act Release No. 74246 (Feb. 11, 2015), 80 FR 14437 (Mar. 19, 2015); 
Registration Process for Security-Based Swap Dealers and Major 
Security-Based Swap Participants, Exchange Act Release No. 75611 
(Aug. 5, 2015), 80 FR 48963 (Aug. 14, 2015); Regulation SBSR--
Reporting and Dissemination of Security-Based Swap Information, 
Exchange Act Release No. 78321 (July 14, 2016), 81 FR 53545 (Aug. 
12, 2016); Applications by Security-Based Swap Dealers or Major 
Security-Based Swap Participants for Statutorily Disqualified 
Associated Person To Effect or Be Involved in Effecting Security-
Based Swaps, Exchange Act Release No. 84858 (Dec. 19, 2018), 84 FR 
4906 (Feb. 19, 2019); Capital, Margin, and Segregation Requirements 
for Security-Based Swap Dealers and Major Security-Based Swap 
Participants and Capital and Segregation Requirements for Broker-
Dealers, Exchange Act Release No. 86175 (June 21, 2019), 84 FR 43872 
(Aug. 22, 2019); Recordkeeping and Reporting Requirements for 
Security-Based Swap Dealers, Major Security-Based Swap Participants, 
and Broker-Dealers, Exchange Act Release No. 87005 (Sept. 19, 2019), 
84 FR 68550 (Dec. 16, 2019); Rule Amendments and Guidance Addressing 
Cross-Border Application of Certain Security-Based Swap 
Requirements, Exchange Act Release No. 87780 (Dec. 18, 2019).
---------------------------------------------------------------------------

    The Commission is extending, for a further nine months, the 
Unlinked Temporary Exemptions that relate to three requests for 
permanent exemptions for security-based swaps from limitations on 
hypothecation of securities carried for the account of a customer in 
Section 8 of the Exchange Act and in Exchange Act Rules 8c-1 and 15c2-
1, from broker-dealer disclosure requirements relating to extensions of 
credit in Exchange Act Rules 10b-16 and 15c2-5, and from certain 
limitations on an OTC derivatives dealer's activities in Exchange Act 
Rule 15a-1. This additional time extends the transition period for the 
Exchange Act provisions and rules relevant to these three requests to 
allow time to further consider the requests taking into account the 
finalized regulatory regime for security-based swap dealers and major 
security-based swap participants, as well as the compliance date for 
registration of those entities.\32\ The Commission believes that an 
additional nine months will provide sufficient time for this further 
consideration.
---------------------------------------------------------------------------

    \32\ See note 3, supra.
---------------------------------------------------------------------------

    The Commission is not extending any other of the Unlinked Temporary 
Exemptions.\33\ The Commission continues to believe that market 
participants will have had adequate time to consider the impact of the 
expiration of the remainder of the Unlinked Temporary Exemptions when 
they expire on February 5, 2020.
---------------------------------------------------------------------------

    \33\ As always, the Commission may, however, consider tailored 
relief in the future under particular facts and circumstances.
---------------------------------------------------------------------------

III. Commission Findings

    Accordingly, pursuant to its authority under Section 36 of the 
Exchange Act, the Commission finds that it is necessary or appropriate 
in the public interest, and consistent with the protection of 
investors, to extend for a period of nine months, until November 5, 
2020, the Unlinked Temporary Exemptions from Section 8 of the Exchange 
Act and from Exchange Act Rules 8c-1, 15c2-1, 10b-16, 15c2-5, and 15a-
1, in connection with the revision of the Exchange Act definition of 
``security'' to encompass security-based swaps, in each case contained 
in the 2011 Exchange Act Exemptive Order and extended in the January 
2019 Extension Order. This extension will allow time to further 
consider the requests taking into account the finalized regulatory 
regime for security-based swap dealers and major security-based swap 
participants, as well as the

[[Page 2766]]

compliance date for the registration of those entities.
    The remainder of the Unlinked Temporary Exemptions will expire on 
February 5, 2020, as provided in the January 2019 Extension Order.
* * * * *

IV. Conclusion

    It is hereby ordered, pursuant to Section 36 of the Exchange Act, 
that the Unlinked Temporary Exemptions from Section 8 of the Exchange 
Act and from Exchange Act Rules 8c-1, 15c2-1, 10b-16, 15c2-5 and 15a-1 
in connection with the revision of the Exchange Act definition of 
``security'' to encompass security-based swaps, in each case contained 
in the 2011 Exchange Act Exemptive Order and extended in the January 
2019 Extension Order, are extended until November 5, 2020.

    By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-00568 Filed 1-15-20; 8:45 am]
 BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.