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January 10, 2024 

Observations Related to Security-Based Swap Dealers

I. Introduction

The Securities and Exchange Commission (the “Commission”)* is responsible for regulating the 

security-based swap markets, including security-based swap dealers. Beginning in October 2021, 

security-based swap dealers were required to register with the Commission.1 

In 2022, the Division began conducting examinations of registered security-based swap dealers

with a focus on whether they have implemented reasonably designed policies and procedures for

compliance with applicable Commission rules, including requirements related to accurate and 

timely reporting of security-based swap transactions to a registered security-based swap data 

repository. Accurate and complete security-based swap reporting that the Commission and 

investing public can rely upon is crucial for the regulation and transparency of the security-based 

swap markets. Accordingly, the Division also began conducting ad-hoc outreach to certain 

security-based swap dealers concerning their respective security-based swap reporting. This Risk 

Alert discusses the Division’s observations concerning compliance with rules applicable to 

security-based swap dealers.

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 In sharing these observations from its examinations and outreach, 

the Division seeks to remind security-based swap dealers of their obligations under relevant 

security-based swap rules.

* This Risk Alert represents the views of the staff of the Division of Examinations (the “Division”). This Risk Alert 

is not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved the 

content of this Risk Alert. This Risk Alert, like all staff statements, has no legal force or effect; it does not alter or 

amend applicable law, and it creates no new or additional obligations for any person. 

1 As of the date of publication of this Risk Alert, there are 51 security-based swap dealers registered with the 

Commission. See SEC, List of Registered Security-Based Swap Dealers and Major Security-Based Swap 

Participants, https://www.sec.gov/tm/List-of-SBS-Dealers-and-Major-SBS-Participants (last revised September 29, 

2023).

2 For the avoidance of doubt, this Risk Alert does not include the Division’s observations concerning compliance 

with substituted compliance orders. Rule 3a71-6 provides that a registered non-U.S. security-based swap dealer may 

satisfy certain requirements under Exchange Act section 15F by complying with comparable regulatory 

requirements of a foreign jurisdiction. The Commission has adopted substituted compliance determinations 

applicable to registered non-U.S. security-based swap dealers in France, Germany, Spain, Switzerland, and the 

United Kingdom. See https://www.sec.gov/tm/Jurisdiction-Specific-Apps-Orders-and-MOU. 
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II. Relevant Regulation and Guidance

The Dodd-Frank Wall Street Reform and Consumer Protection Act created a regulatory 

framework for security-based swaps by adding, among other provisions, Section 15F to the 

Securities Exchange Act of 1934 (“Exchange Act”) requiring the registration and regulation of 

security-based swap dealers. The Commission has adopted a number of rules for security-based 

swap dealers, including rules related to security-based swap trade reporting, business conduct, 

security-based swap trading relationship documentation, portfolio reconciliation, and 

recordkeeping. 

A. Reporting of Security-Based Swap Transactions and Correction of Reporting Errors 

Regulation SBSR governs the regulatory reporting and public dissemination of security-based 

swap transactions and requires market participants to report security-based swap information to a 

registered security-based swap data repository.

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 Information to be reported to the registered 

security-based swap data repository within the requisite timeframe generally falls into two

categories: primary trade information and secondary trade information.4

 A time-limited 

Commission Statement with respect to Regulation SBSR provides that, if a registered securitybased swap data repository and its participants follow the Commodity Futures Trading 

Commission’s (“CFTC”) swap reporting and public dissemination protocols and apply those 

protocols to security-based swap reporting, there will not be a basis for a Commission 

enforcement action with respect to certain provisions of Regulation SBSR that differ from the 

CFTC’s reporting and public dissemination rules (Parts 45 and 43, respectively).5

 Moreover, 

security-based swap dealers in particular are required to establish, maintain, and enforce written 

policies and procedures that are reasonably designed to ensure that it complies with any 

obligations to report information to a registered security-based swap data repository in a manner 

consistent with Regulation SBSR.

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B. Business Conduct Standards 

Exchange Act Rule 15Fh-3(h) requires security-based swap dealers to establish and maintain a 

system to supervise their business and the activities of their associated persons effecting or 

involved in effecting security-based swaps,7 setting forth minimum requirements for such system 

including maintaining reasonably designed policies and procedures addressing the following: 

3

 17 C.F.R. 242.900 to 242.909. 

4

 17 C.F.R. 242.901.

5 Exchange Act Release No. 87780 (December 18, 2019), 85 FR 6270, 6346-49 (February 4, 2020).

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 17 C.F.R. 242.906. 7 See Registration Process for Security-Based Swap Dealers and Major Security-Based Swap Participants, Exchange 

Act Release No. 34-75611, 80 Fed. Reg. 48964, 48976 (Aug. 14, 2015), available at 

https://www.govinfo.gov/content/pkg/FR-2015-08-14/pdf/2015-19661.pdf. 
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• Review by a designated supervisor of security-based swap transactions for which 

registration as a security-based swap dealer is required; 

• Supervisory review of external communications with counterparties and internal 

communications concerning the security-based swap dealer’s business;8

• On at least an annual basis, an internal review of security-based swap business 

reasonably designed to detect and prevent violations of applicable securities laws, 

rules, and regulations; 

• Reasonable investigation of the good character, business repute, qualifications, and 

experience of any person prior to their association with the security-based swap 

dealer; 

• Reviews of associated persons’ trading relationships or activity in permitted, external 

personal trading accounts; and

• Conflicts of interest arising from an associated person or supervising a person who 

determines the compensation or continued employment of the associated person. 

C. Security-Based Swap Trading Relationship Documentation and Portfolio Reconciliation 

Exchange Act Rule 15Fi-5 requires each security-based swap dealer to establish, maintain, and 

follow written policies and procedures reasonably designed to ensure the execution of written 

security-based swap trading relationship documentation with each counterparty that complies

with the requirements of the Rule. Those requirements include that trading relationship 

documentation be executed prior to, or contemporaneously with, executing any security-based 

swap transaction. In addition, a senior officer of a security-based swap dealer must approve in 

writing its trading relationship documentation policies and procedures and the security-based 

swap dealer must retain a record thereof. Further, each security-based swap dealer is required to 

have an independent auditor conduct periodic audits sufficient to identify any material 

weaknesses in the security-based swap dealer’s trading relationship documentation policies and 

procedures. An internal auditor is not ordinarily considered independent for purposes of the audit 

requirement under Exchange Act Rule 15Fi-5(c).9

 

8 While Exchange Act Rule 15Fh-3(h) exclusively addresses written communications, the minimum requirements 

for a supervisory system listed in the rule are not an exhaustive list. Security-based swap dealers have an 

overarching obligation in Rule 15Fh-3(h)(1) to establish and maintain a supervisory system that is reasonably 

designed to prevent violations of applicable federal securities laws and the rules and regulations thereunder relating 

to the security-based swap dealer’s business as a security-based swap dealer. Therefore, if a security-based swap

dealer records oral communications with counterparties or potential counterparties, the security-based swap dealer 

generally should consider providing for the supervisory review of such communications. Similarly, if a securitybased swap dealer chooses to provide certain disclosures required by Rule 15Fh-3(b) orally, the security-based swap

dealer should consider how it will supervise these oral communications. See Business Conduct Standards for 

Security-Based Swap Dealers and Major Security-Based Swap Participants, Exchange Act Release No. 34-77617, 

81 Fed. Reg. 29960, 30005 (May 13, 2016), available at https://www.govinfo.gov/content/pkg/FR-2016-05-

13/pdf/2016-10918.pdf.

9 See Risk Mitigation Techniques for Uncleared Security-Based Swaps, Exchange Act Release No. 34-87782, 85 

Fed. Reg. 6359, 6375 (Feb. 4, 2020), available at https://www.govinfo.gov/content/pkg/FR-2020-02-04/pdf/2019-

27762.pdf. 
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Exchange Act Rule 15Fi-3 sets forth requirements for security-based swap dealers regarding 

portfolio reconciliation, including that each security-based swap dealer agree in writing with 

each of its counterparties on the terms of the portfolio reconciliation. 

D. Recordkeeping 

Exchange Act Rules 17a-3 and 18a-5 require security-based swap dealers to make and keep 

current certain books and records. For example, security-based swap dealers must make and 

keep current blotters (or other records of original entry) containing an itemized daily record of 

purchases and sales of securities (including security-based swaps). Security-based swap dealers

must also make and keep current, for each security-based swap transaction, a record of the 

unique identification code of the counterparty. Security-based swap dealers are also required to 

make and keep current, for each security-based swap account, the name and address of the 

counterparty, and a record of the authorization of each person the counterparty has granted 

authority to transact business in the security-based swap account. Further, security-based swap 

dealers must make and keep current a record listing every associated person, including every 

office where the associated person regularly conducts business of handling funds or securities or 

effecting any transactions in, or inducing or attempting to induce, the purchase or sale of any 

security for the security-based swap dealer, the associated person’s Central Registration 

Depository number, if any, and every internal identification number or code assigned to that 

person by the security-based swap dealer. 

III. Staff Observations from Examinations and Outreach 

This section provides the Division staff’s observations and views concerning compliance with 

applicable rules based on examinations of, and outreach to, security-based swap dealers. In 

general, the Division observed that certain security-based swap dealers did not establish, 

maintain, or enforce reasonably designed policies and procedures addressing applicable 

Exchange Act requirements. Further, the Division observed that certain security-based swap 

dealers did not comply with Exchange Act requirements, including applicable requirements 

under Regulation SBSR. 

A. Reporting of Security-Based Swap Transactions and Correction of Reporting Errors

In examinations and other outreach to security-based swap dealers, the Division observed that 

certain security-based swap dealers failed to:

• Report certain security-based swap trade data to a registered security-based swap data 

repository within the required timeframes; 

• Accurately report primary trade information, including by reporting: 

o inaccurate notional amounts, including miscalculated notional amounts and 

notional amounts that are not economically possible; and

o incorrect underlying asset information, such as an incorrect International 

Securities Identification Number (“ISIN”) or an underlying asset of “Basket,” 
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without identifying specific underlying reference asset(s), reference issuer(s), or 

reference index as required under Rule 901(c)(1)(i); 10 and

• Accurately and completely report all secondary trade information, such as: 

o counterparty identifications, including reporting an internal identifier for 

security-based swap transactions that did not involve privacy laws or natural 

persons; and 

o buyer, seller, receiver, or payer fields.

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In many instances, the failures identified above were the result of weak internal controls and 

processes for ensuring that information reported was accurate. In addition, examinations of 

security-based swap dealers revealed that certain security-based swap dealers did not employ 

procedures that were reasonably designed to identify and correct the trade reporting errors noted 

above.

B. Business Conduct Standards 

The Division observed that certain security-based swap dealers failed to identify all associated 

persons, including those effecting security-based swap transactions or involved in effecting 

security-based swap transactions, often resulting in failure to satisfy supervisory obligations for 

all associated persons pursuant to Exchange Act Rule 15Fh-3(h). 

The Division observed that certain security-based swap dealers did not establish a system to

address the minimum requirements set forth in Exchange Act Rule 15Fh-3(h), including failing 

to establish:

• Procedures prohibiting a supervisor from supervising his or her own activities or 

reporting to, or having the supervisor’s compensation or continued employment to be 

determined by, a person he or she supervises; 

• Procedures reasonably designed to prevent the supervisory system from being 

compromised due to the conflicts of interest that may be present with respect to the 

associated person being supervised, including the position of such person, the revenue 

such person generates for the security-based swap dealer, or any compensation that 

the associated person conducting the supervision may derive from the associated 

person being supervised (e.g., failing to address identification of conflicts of interest 

or management of conflicts of interest or potential conflicts of interest identified); 

• Procedures for review by a supervisor of incoming and outgoing written (including 

electronic) correspondence with counterparties or potential counterparties and internal 

10 See Frequently Asked Questions on Regulation SBSR, Division of Trading and Markets, available at 

https://www.sec.gov/tm/faqs-reg-sbs (providing Commission staff's responses to questions regarding the timeliness 

of SBS reporting under Rule 901(j) and reporting underlying reference assets under Rule 901(c)(1), among other 

topics).

11 For a list of data quality issues, refer to the Appendix of the Commission’s Report on Security-Based Swaps 

Pursuant to Section 13(m)(2) of the Securities Exchange Act of 1934 (Mar. 20, 2023), available at 

https://www.sec.gov/files/report-security-based-swaps-032023.pdf.
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written communications relating to the security-based swap dealer's business 

involving security-based swaps that were not reasonably designed and did not address 

the types of security-based swap business in which a security-based swap dealer and 

its associated persons engaged (e.g., failed to account for recorded telephone 

conversations of associated persons or used generic search terms to identify 

communications for review); 

• Procedures to supervise associated persons’ trading at another financial institution; 

• Procedures for a periodic review, at least annually, of the security-based swap

business in which the security-based swap dealer engages that is reasonably designed 

to assist in detecting and preventing violations of applicable federal securities laws 

and the rules and regulations thereunder; and

• Procedures for review by a supervisor of transactions for which registration as a 

security-based swap dealer is required. 

C. Security-Based Swap Trading Relationship Documentation and Portfolio Reconciliation 

The Division observed that certain security-based swap dealers failed to: 

• Have an independent auditor perform periodic audits of security-based swap trading 

relationship documentation policies and procedures; 

• Retain the required record of a Senior Officer’s written approval of security-based 

swap trading relationship documentation policies and procedures, and any 

amendments thereto; and

• Agree in writing with counterparties on the terms for portfolio reconciliation, 

including terms relating to the method of reconciliation, such as negative consent. 

D. Recordkeeping 

The Division observed that certain security-based swap dealers failed to consistently make and 

keep current complete and accurate records such as trade blotters, counterparty listings, and 

associated person listings. 

IV. Conclusion 

Security-based swap dealers play a critical role in our capital markets. In sharing the information 

in this Risk Alert, the Division encourages security-based swap dealers to consider 

improvements in their compliance programs, as may be appropriate, to further compliance with 

Exchange Act requirements. The Division further encourages security-based swap dealers to 

review and strengthen their policies, procedures, internal controls, and security-based swap

reporting capabilities. 
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This Risk Alert is intended to highlight for firms risks and issues that Division staff has identified. In 

addition, this Risk Alert describes risks that firms may consider to (1) assess their supervisory, 

compliance, and/or other risk management systems related to these risks, and (2) make any changes, 

as may be appropriate, to address or strengthen such systems. Other risks besides those described 

in this Risk Alert may be appropriate to consider, and some issues discussed in this Risk Alert may 

not be relevant to a particular firm’s business. The adequacy of supervisory, compliance and other 

risk management systems can be determined only with reference to the profile of each specific firm 

and other facts and circumstances.