The Securities and Exchange Commission has adopted new rules that will require security-based swap data repositories (SDRs) to register with it and adhere to new recordkeeping and data transparency requirements. The rules also provide an exemption from registration for certain non-U.S. SDRs when specific conditions are met.

Commissioner Michael Piwowar, however, was a dissenting vote over what he says were last-minute changes intended to crack down on individuals who lie to an SDR’s chief compliance officer.

The new Regulation SBSR details the information that must be reported and publicly disseminated for each security-based swap transaction. The rules also assign reporting duties for many security-based swap transactions and require SDRs registered with the SEC to establish and maintain policies and procedures for carrying out those requirements.

To facilitate compliance, the Commission is recognizing the Global Legal Entity Identifier System as the system from which security-based swap counterparties must obtain codes to identify themselves when reporting security-based swap data.  “While the recommendation requires some end users, along with other SDR participants, to obtain a legal entity identifier to increase transparency, the cost—approximately $200—is quite minimal and, in my view, significantly outweighed by the regulatory and operational benefits of a single, widely used counterparty identifier,” White said.

For cross-border security-based swap activity, the SEC will allow market participants to satisfy their obligations through compliance with the comparable regulation of a foreign jurisdiction.

Proposed rule amendments, subject to public comment, would prohibit registered SDRs from charging fees to or imposing usage restrictions on the users of publicly disseminated security-based swap transaction data, and provide a compliance schedule for certain provisions of Regulation SBSR.

The new rules will become effective 60 days after they are published in the Federal Register. Those subjected to the new rules governing the registration of SDRs must comply with them by 365 days after they are published in the Federal Register.  The compliance date for certain provisions of Regulation SBSR is the effective date, and the Commission is proposing compliance dates for the remaining provisions of Regulation SBSR in the proposed amendments release.

Citing “deeply troubling changes” made to the rules, Piwowar was a dissenting vote. The security-based swap data repository rulemaking “was subjected to many misguided, Commissioner-driven changes,” he said.

“In the last few days a new provision was added to the SDR rule under the pretense of cracking down on individuals that mislead or lie to an SDR’s chief compliance officer,” Piwowar said. “While we can all agree that lying to a CCO is reprehensible behavior that should not be tolerated, the broad and imprecise language in this provision does nothing to bolster effective compliance. It merely creates heightened liability and uncertainty for individuals associated with SDRs based on their interactions with a CCO, which is neither necessary nor appropriate in the public interest.”

The provision “will chill communication between the CCO and others at the SDR if they fear [it] may subject them to liability, he said, adding that conflicts of interest requirements set forth in the rule are sufficient to address concerns about the quality of information provided to the CCO. To mitigate potential conflicts of interest “the SDR could instead prohibit, in its policies and procedures, officers, directors, or employees from directly or indirectly influencing the CCO in the performance of [their] responsibilities, or from requiring the CCO to make any changes to the SDR’s annual compliance report.”

That concept, Piwowar said, was included in the original draft, rather than the “lying to the CCO” provision which was suggested by “a single politically-connected commenter whose views are often described as extreme and irrational” and added prior to the vote. “I recognize that ‘being tough on liars’ is good headline material, but such a simplistic view does not make good policy,” he said.

Topics