2046 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Rules and Regulations 

9See 5 U.S.C. 533(d). 

10 5 U.S.C. 603(a), 604(a). 

11 44 U.S.C. 3506. 

1 15 U.S.C. 77a et seq. 

2Public Law 111–203, 124 Stat. 1376 (2010). 

3The SEC and the CFTC, in consultation with the 

Board of Governors of the Federal Reserve System, 

jointly further defined the product and 

intermediary terms used in Title VII, including 

‘‘swap,’’ ‘‘security-based swap,’’ ‘‘swap dealer,’’ 

‘‘security-based swap dealer,’’ ‘‘major swap 

participant,’’ ‘‘major security-based swap 

participant,’’ ‘‘eligible contract participant,’’ and 

‘‘security-based swap agreement.’’ See Further 

Definition of ‘‘Swap Dealer,’’ ‘‘Security-Based Swap 

Dealer,’’ ‘‘Major Swap Participant,’’ ‘‘Major 

Security-Based Swap Participant’’ and ‘‘Eligible 

Contract Participant’’, Release No. 34–66868 (Apr. 

27, 2012), 77 FR 30596 (May 23, 2012) 

(‘‘Intermediary Definitions Adopting Release’’), and 

Further Definition of ‘‘Swap,’’ ‘‘Security-Based 

Swap,’’ and ‘‘Security-Based Swap Agreement’’; 

Mixed Swaps; Security-Based Swap Agreement 

Recordkeeping, Release No. 33–9338 (Jul. 18, 2012), 

77 FR 48208 (Aug. 13, 2012) (‘‘Product Definitions 

Adopting Release’’). 

4 15 U.S.C. 78a et seq. 

5See Sections 761(a)(2) and 768(a)(1) of the 

Dodd-Frank Act (amending Section 3(a)(10) of the 

Exchange Act [15 U.S.C. 78c(a)(10)] and Section 

2(a)(1) of the Securities Act [15 U.S.C. 77b(a)(1)], 

respectively). 

6See 15 U.S.C. 77e. 

for inflation according to a statutorily 

prescribed formula. 

Section 553 of title 5 of the United 

States Code generally requires an agency 

to publish a rule at least 30 days before 

its effective date to allow for advance 

notice and opportunity for public 

comments.9 After the initial adjustment 

for 2016, however, the Civil Penalties 

Inflation Adjustment Act requires 

agencies to make subsequent annual 

adjustments for inflation 

‘‘notwithstanding section 553 of title 5, 

United States Code.’’ Moreover, the 

2018 adjustments are made according to 

a statutory formula that does not 

provide for agency discretion. 

Accordingly, a delay in effectiveness of 

the 2018 adjustments is not required. 

IV. Regulatory Requirements 

Regulatory Flexibility Act 

Because no notice of proposed 

rulemaking is required, the Regulatory 

Flexibility Act does not require an 

initial or final regulatory flexibility 

analysis.10

Paperwork Reduction Act 

In accordance with the Paperwork 

Reduction Act of 1995,11 NASA 

reviewed this final rule. No collections 

of information pursuant to the 

Paperwork Reduction Act are contained 

in the final rule. 

List of Subjects in 14 CFR Parts 1264 

and 1271 

Claims, Lobbying, Penalties. 

For the reasons stated in the 

preamble, the National Aeronautics and 

Space Administration is amending 14 

CFR parts 1264 and 1271 as follows: 

PART 1264—IMPLEMENTATION OF 

THE PROGRAM FRAUD CIVIL 

PENALTIES ACT OF 1986 

■ 1. The authority citation for part 1264 

continues to read as follows: 

Authority: 31 U.S.C. 3809, 51 U.S.C. 

20113(a). 

§ 1264.102 [Amended] 

■ 2. In § 1264.102, remove the number 

‘‘$10,957’’ everywhere it appears and 

add in its place the number ‘‘$11,181’’. 

PART 1271—NEW RESTRICTIONS ON 

LOBBYING 

■ 3. The authority citation for part 1271 

continues to read as follows: 

Authority: Section 319, Pub. L. 101–121 

(31 U.S.C. 1352); Pub. L. 97–258 (31 U.S.C. 

6301 et seq.) 

§ 1271.400 [Amended] 

■ 4. In § 1271.400: 

■ a. In paragraphs (a) and (b), remove 

the words ‘‘not less than $19,246 and 

not more than $192,459’’ and add in 

their place the words ‘‘not less than 

$19,639 and not more than $196,387’’. 

■ b. In paragraph (e), remove the two 

occurrences of ‘‘$19,246’’ and add in 

their place ‘‘$19,639’’ and remove 

‘‘$192,459’’ and add in its place 

‘‘$196,387’’. 

Appendix A to Part 1271 [Amended] 

■ 5. In appendix A to part 1271: 

■ a. Remove the number ‘‘$19,246’’ 

everywhere it appears and add in its 

place the number ‘‘$19,639’’. 

■ b. Remove the number ‘‘$192,459’’ 

everywhere it appears and add in its 

place the number ‘‘$196,387’’. 

Nanette J. Smith, 

NASA Federal Register Liaison Officer. 

[FR Doc. 2018–00587 Filed 1–12–18; 8:45 am] 

BILLING CODE 7510–13–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Part 230 

[Release No. 33–10450; File No. S7–09–14] 

RIN 3235–AL41 

Treatment of Certain Communications 

Involving Security-Based Swaps That 

May Be Purchased Only by Eligible 

Contract Participants 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Final rule. 

SUMMARY: We are adopting a rule under 

the Securities Act of 1933 (‘‘Securities 

Act’’) to provide that certain 

communications involving securitybased swaps will not be deemed to 

constitute ‘‘offers’’ of such securitybased swaps for purposes of Section 5 

of the Securities Act. The final rule 

covers the publication or distribution of 

price quotes that relate to security-based 

swaps that may be purchased only by 

persons who are eligible contract 

participants (‘‘covered SBS’’) and are 

traded or processed on or through 

certain trading platforms. The final rule 

also covers a broker, dealer, or securitybased swap dealer’s publication or 

distribution of written communications 

that discuss covered SBS and that meet 

the definition of ‘‘research report’’ in 

Rule 139(d) under the Securities Act 

and certain other conditions. 

DATES: Effective January 16, 2018. 

FOR FURTHER INFORMATION CONTACT: 

Andrew Schoeffler, Special Counsel, 

Office of Capital Markets Trends, 

Division of Corporation Finance, at 

(202) 551–3860, U.S. Securities and 

Exchange Commission, 100 F Street NE, 

Washington, DC 20549–3628. 

SUPPLEMENTARY INFORMATION: We are 

adopting Rule 135d under the Securities 

Act.1

I. Background and Summary 

On July 21, 2010, President Barack 

Obama signed the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (‘‘Dodd-Frank Act’’) 2 into law. Title 

VII of the Dodd-Frank Act (‘‘Title VII’’) 

provides the Securities and Exchange 

Commission (‘‘SEC’’ or the 

‘‘Commission’’) and the Commodity 

Futures Trading Commission (‘‘CFTC’’) 

with the authority to regulate over-thecounter derivatives. Under Title VII, the 

CFTC regulates ‘‘swaps,’’ the SEC 

regulates ‘‘security-based swaps,’’ and 

the CFTC and SEC jointly regulate 

‘‘mixed swaps.’’ 3

Title VII amended the Securities Act 

and the Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 4 to include ‘‘securitybased swaps’’ in the definition of 

‘‘security.’’ 5 As a result, ‘‘security-based 

swaps’’ are subject to the Securities Act 

and the Exchange Act and the rules and 

regulations thereunder. Section 5 of the 

Securities Act requires that any offer or 

sale of a security must either be 

registered under the Securities Act or be 

made pursuant to an exemption from 

registration.6 As a result, counterparties 


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7The term ‘‘eligible contract participant’’ is 

defined in Section 1a(18) of the Commodity 

Exchange Act [7 U.S.C. 1a(18)]. The definition of 

the term ‘‘eligible contract participant’’ in the 

Securities Act refers to the definition of ‘‘eligible 

contract participant’’ in the Commodity Exchange 

Act. See Section 5(e) of the Securities Act [15 U.S.C. 

77e(e)]. The SEC and the CFTC have adopted final 

rules further defining the term ‘‘eligible contract 

participant.’’ See Intermediary Definitions Adopting 

Release. 

8See Section 768(b) of the Dodd-Frank Act 

(adding new Section 5(d) of the Securities Act [15 

U.S.C. 77e(d)]). Section 105(c)(1) of the Jumpstart 

Our Business Startups Act subsequently redesignated Section 5(d) of the Securities Act as 

Section 5(e). See Public Law 112–106, 126 Stat. 306 

(2012). 

9See 15 U.S.C. 77b(a)(3). 

10See footnote 8 above and accompanying text. 

11See Treatment of Certain Communications 

Involving Security-Based Swaps That May Be 

Purchased Only By Eligible Contract Participants, 

Release No. 33–9643 (Sep. 8, 2014), 79 FR 54224 

(Sep. 11, 2014) (‘‘Proposing Release’’). 

12See Proposing Release. Security-based swaps 

may be guaranteed to provide protection against a 

counterparty’s default. A guarantee of a security is 

itself a security for purposes of the Securities Act. 

See Section 2(a)(1) of the Securities Act [15 U.S.C. 

77b(a)(1)]. As a result, the publication or 

distribution of SBS price quotes also may be viewed 

as offers of any guarantees of the security-based 

swaps that are the subject of the SBS price quotes. 

Because we believe that a guarantee of a securitybased swap is part of the security-based swap 

transaction, the proposed rule also would deem the 

publication or distribution of SBS price quotes to 

not constitute an offer, an offer to sell, or a 

solicitation of an offer to buy or purchase any 

guarantees of the security-based swaps that are the 

subject of the SBS price quotes. 

13See Proposing Release (79 FR at 54233 through 

34). The Proposing Release discussed the types of 

communications covered and not covered by the 

proposed rule and included an extensive request for 

comment about communications characterized as 

research that discuss security-based swaps. See 

Proposing Release (79 FR at 54232 through 34). 

14Rule 139(d) defines a research report as ‘‘a 

written communication, as defined in Rule 405, that 

includes information, opinions, or 

recommendations with respect to securities of an 

issuer or an analysis of a security or an issuer, 

whether or not it provides information reasonably 

sufficient upon which to base an investment 

decision.’’ See 17 CFR 230.139(d). 

15The Research Rules are safe harbors that 

describe the circumstances in which a broker or 

dealer may publish or distribute securities research 

around the time of a securities offering without 

violating Section 5 of the Securities Act. See 17 CFR 

230.137, 17 CFR 230.138 and 17 CFR 230.139. The 

Commission has not previously addressed the 

applicability of the Research Rules in the context 

of research discussing security-based swaps because 

most security-based swaps were not securities prior 

to the effective date of Title VII. 

16See 15 U.S.C. 77b(a)(3). Section 2(a)(3) 

provides, among other things, that ‘‘[a]ny offer or 

sale of a security-based swap by or on behalf of the 

issuer of the securities upon which such securitybased swap is based or is referenced, an affiliate of 

the issuer, or an underwriter, shall constitute a 

contract for sale of, sale of, offer for sale, or offer 

to sell such securities.’’ 

17There are many types of platforms currently in 

operation on or through which security-based swap 

transactions are effected. See Proposing Release (79 

FR at 54225) and pages 18 through 20 (79 FR at 

54228 through 29). While certain of these platforms 

may be required to register as security-based SEFs 

upon the full implementation of Title VII, they 

currently are not required to do so pursuant to 

exemptive relief adopted by the Commission. See 

Temporary Exemptions and Other Temporary 

Relief, Together with Information on Compliance 

Dates for New Provisions of the Securities Exchange 

Act of 1934 Applicable to Securities-Based Swaps, 

Exchange Act Release No. 64678 (Jun. 15, 2011), 76 

FR 36287 (Jun. 22, 2011). The final rule covers the 

dissemination of price quotes relating to securitybased swaps that are traded or processed on or 

through exempt security-based SEFs. As such, 

platforms currently operating pursuant to the 

Commission’s exemptive relief could rely upon the 

final rule in the event that there is uncertainty 

about dissemination of price quotes affecting the 

availability of exemptions from the registration 

requirements of the Securities Act. 

18See footnote 23 below and accompanying text. 

entering into security-based swap 

transactions need either to rely on an 

available exemption from the 

registration requirements of the 

Securities Act or register such 

transactions. Title VII also amended the 

Securities Act to prohibit offers and 

sales of security-based swaps to persons 

who are not ‘‘eligible contract 

participants’’ (‘‘ECPs’’) 7 unless a 

registration statement is in effect as to 

the security-based swaps.8

Because security-based swaps are 

included in the definition of ‘‘security,’’ 

the publication or distribution of certain 

communications involving securitybased swaps on an unrestricted basis 

could be viewed as offers of those 

security-based swaps within the 

meaning of Section 2(a)(3) of the 

Securities Act.9 Further, such 

communications also may be considered 

offers to non-ECPs, even though such 

persons are not permitted to purchase 

the security-based swaps unless, as 

noted above, a registration statement 

under the Securities Act is in effect as 

to such security-based swaps.10 If there 

are no Securities Act exemptions 

available with respect to a securitybased swap transaction, the required 

registration of such transactions could 

negatively affect the security-based 

swaps market. 

On September 8, 2014, the 

Commission proposed a rule to address 

the treatment of certain communications 

involving covered SBS, in particular 

price quotes relating to covered SBS that 

are traded or processed on or through a 

facility either registered as a national 

securities exchange or as a securitybased swap execution facility 

(‘‘security-based SEF’’), or exempt from 

registration as a security-based SEF 

pursuant to a rule, regulation, or order 

of the Commission (‘‘SBS price 

quotes’’).11 Under the proposed rule, the 

publication or distribution of SBS price 

quotes would not be deemed to 

constitute an offer, an offer to sell, or a 

solicitation of an offer to buy or 

purchase the security-based swaps that 

are the subject of such communications 

or any guarantees of such security-based 

swaps for purposes of Section 5 of the 

Securities Act.12 The purpose of the 

proposed rule was to further the goal of 

Title VII to bring the trading of securitybased swaps onto regulated trading 

platforms while avoiding unintended 

consequences arising from the 

application of the Securities Act to the 

dissemination of price quotes on such 

platforms. 

The Proposing Release requested 

comment on all aspects of the proposed 

rule, including whether the proposed 

rule should cover other types of 

communications, such as 

communications characterized as 

research that discuss security-based 

swaps.13 We have reviewed and 

considered all of the comments that we 

received relating to the proposed rule. 

As described in detail below, we are 

adopting the rule substantially as 

proposed, with one substantive addition 

addressing written communications that 

discuss covered SBS and meet the 

definition of ‘‘research report’’ in Rule 

139(d) under the Securities Act 14 and 

certain other conditions (‘‘SBS-related 

research reports’’). The final rule 

provides that a broker, dealer, or 

security-based swap dealer’s publication 

or distribution of SBS-related research 

reports will not be deemed to be an offer 

of the security-based swaps that are the 

subject of such communication or any 

guarantees of such security-based swaps 

for purposes of Section 5 of the 

Securities Act. 

The final rule does not affect the 

treatment of research reports under 

existing Securities Act Rules 137, 138 

and 139 (the ‘‘Research Rules’’).15 As a 

result, communications relating to 

offerings of securities underlying 

security-based swaps, including by 

operation of Section 2(a)(3) of the 

Securities Act,16 must be analyzed 

separately under the Research Rules. In 

that case, any discussion of a securitybased swap in a research report would 

be analyzed under the final rule, while 

any discussion of securities underlying 

such security-based swap (which could 

be in the same research reports 

discussing the security-based swap) 

would be analyzed under the Research 

Rules. 

While the provisions of Title VII 

relating to security-based SEFs have not 

yet been fully implemented,17 given that 

market participants currently are 

publishing and distributing SBS-related 

research reports, we believe that it is 

appropriate at this time to adopt the 

final rule. As one commenter noted,18 if 


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19For example, the commenter noted that if such 

communications were deemed to be an offer, the 

exemption in Section 4(a)(2) may not be available. 

Id. 

20See footnotes 41 and 44 below and 

accompanying text. 

21See footnote 8 above and accompanying text. 

22See letter from Chris Barnard, dated October 

27, 2014; letter from Daniel E. Glatter, Deputy 

General Counsel, GFI Group Inc., dated November 

10, 2014 (‘‘GFI Letter’’); letter from Bryan Levin, 

Greenspring Funding, dated October 16, 2014; and 

letter from Kyle Brandon, Managing Director, 

Securities Industry and Financial Markets 

Association, dated December 8, 2014 (‘‘SIFMA 

Letter’’). 

23See SIFMA Letter. 

24 Id. See, e.g., Regulation Analyst Certification 

[17 CFR 242.500 through 242.505] and FINRA Rules 

2241 (Research Analysts and Research Reports) and 

2242 (Debt Research Analysts and Debt Research 

Reports). 

25See SIFMA Letter. Such research generally 

discusses security-based swaps in the following 

contexts: (i) Providing an investment 

recommendation as to a specific security-based 

swap by offering views on the security or a relative 

value analysis against another security; (ii) referring 

to security-based swaps in connection with an 

analysis of credit markets or proposed credit trading 

strategies; or (iii) discussing one or more securitybased swaps in the context of covering other 

securities of the related issuer as an indicator of the 

overall creditworthiness of such issuer. Id. 

26 Id. 

27 Id. 

28 Id. 

29 Id. 

30 Id. 

31 Id. 

32 Id. 

33 Id. 

34 Id. 

SBS-related research reports are 

published or distributed on an 

unrestricted basis, such 

communications may be viewed as an 

offer. As a result, they may affect the 

availability of Securities Act exemptions 

for transactions in the security-based 

swaps that may be discussed in the 

research reports.19 Such 

communications also may constitute an 

illegal offer to non-ECPs if there is no 

effective registration statement under 

the Securities Act because no Securities 

Act exemptions are available for offers 

and sales of security-based swaps to 

non-ECPs. In addition, potential 

uncertainty about the availability of 

Securities Act exemptions for 

transactions between ECPs may lead 

some market participants to not engage 

in security-based swap transactions or 

withhold or limit the publication or 

distribution of SBS-related research 

reports. This in turn could reduce the 

information available to investors and 

other market participants in the 

security-based swaps market, credit 

markets, and securities markets 

generally. We believe that the final rule 

is needed at this time to reduce this 

uncertainty. 

We are not extending the expiration 

date of the interim final exemptions or 

adopting one commenter’s request for 

an exemption from the registration and 

other provisions of the Securities Act for 

security-based swap transactions 

between ECPs.20 We do not believe that 

either course would address the 

identified concern about the availability 

of existing Securities Act exemptions for 

transactions between ECPs. For 

example, neither course would address 

the concern that certain 

communications involving securitybased swaps could be considered offers 

to non-ECPs. As noted above, such 

offers must be registered under the 

Securities Act because no exemptions 

from the registration requirements of the 

Securities Act are available for offers 

and sales of security-based swaps to 

non-ECPs.21 As such, neither course 

would remove uncertainty about 

whether certain communications 

involving security-based swaps would 

be deemed to be offers to non-ECPs and 

thereby require registration of the 

relevant security-based swaps under the 

Securities Act. 

II. Discussion of the Final Rule 

A. Comments 

We received four comment letters, 

each of which supported the proposed 

rule.22 We discuss and respond to the 

comments received below. 

1. Comments on the Applicability of the 

Proposed Rule to Research Reports 

One commenter argued that the 

proposed rule should be expanded to 

cover written communications 

involving ‘‘research’’ discussing 

security-based swaps.23 This commenter 

argued that such written 

communications are not meaningfully 

different from other types of securities 

research produced and distributed by 

broker-dealers and their affiliates in the 

ordinary course of business. The 

commenter noted that such written 

communications are produced and 

distributed by broker-dealers’ or their 

affiliates’ research departments and are 

subject to the same policies and 

procedures as other securities 

research.24 The commenter also noted 

that such written communications often 

are included within other published 

securities research, such as general 

credit research, and in such materials 

credit analysts frequently discuss 

security-based swaps in the context of 

more general analyses of credit markets, 

credit strategies, or credit worthiness of 

an issuer.25 Further, the commenter 

noted that such written communications 

included in other credit research or 

research reports may be published or 

distributed by broker-dealers or their 

affiliates through a variety of channels, 

which, depending on the particular 

firm, may include proprietary platforms 

as well as third-party research 

aggregators.26 Such written 

communications included in other 

credit research or research reports may 

be made accessible to existing clients, 

including clients that are not ECPs, and 

in some cases may be made accessible 

to the general public.27

Because of the manner in which such 

written communications are 

disseminated, the commenter was 

concerned that the publication or 

distribution of such communications 

may be deemed to be an offer of the 

relevant security-based swaps, 

including to non-ECPs.28 According to 

the commenter, there could be no 

exemption available for such offer 

because of the possible dissemination to 

or accessibility by non-ECPs.29 Further, 

the commenter noted that determining 

whether an exemption is available for 

each particular security-based swap 

transaction as a result of such written 

communications would be a timeconsuming and fact-intensive judgment 

call.30 The commenter noted that if no 

Securities Act exemptions are available 

for a security-based swap transaction 

because such written communications 

are viewed as an offer, market 

participants may withhold or limit the 

publication or distribution of such 

written communications.31

The commenter described the 

possible effects of a limitation on the 

publication or distribution of such 

written communications on the 

security-based swaps market and 

securities markets generally. According 

to the commenter, such written 

communications inform market 

participants’ investment decisions.32

For example, such written 

communications assist ECPs in 

determining the pricing of securitybased swaps, such as credit default 

swaps, including with respect to the 

relative value of a given security-based 

swap in relation to other securities.33 In 

addition, the commenter indicated that 

such written communications also have 

informational value to securities 

markets generally, including to nonECPs.34 Market participants, whether 

transacting in security-based swaps or 

not, may find such written 

communications useful in analyzing 

underlying issuers or securities because 

such communications provide views on 


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35 Id. 36 Id. 37 Id. 38 Id. 39See Proposing Release (79 FR at 54226 and 

54234). 

40 15 U.S.C. 77aaa et seq. 

41See Rule 240 under the Securities Act [17 CFR 

230.240], Rules 12a–11 and Rule 12h–1(i) under the 

Exchange Act [17 CFR 240.12a–11 and 17 CFR 

240.12h–1], and Rule 4d–12 under the Trust 

Indenture Act [17 CFR 260.4d–12]. See also 

Exemptions for Security-Based Swaps, Release No. 

33–9231 (Jul. 1, 2011), 76 FR 40605 (Jul. 11, 2011). 

The category of security-based swaps covered by 

the interim final exemptions involves those that 

would have been defined as ‘‘security-based swap 

agreements’’ prior to the enactment of Title VII. See 

Section 2A of the Securities Act [15 U.S.C. 77b(b)– 

1)] and Section 3A of the Exchange Act [15 U.S.C. 

78c–1], each as in effect prior to the Title VII 

effective date. For example, the vast majority of 

security-based swap transactions involve singlename credit default swaps, which would have been 

‘‘security-based swap agreements’’ prior to the Title 

VII effective date. In contrast, the definition of 

‘‘security-based swap agreement’’ did not include 

security-based swaps that are based on or reference 

only loans and indexes only of loans. The Division 

of Corporation Finance issued a no-action letter that 

addressed the availability of the interim final 

exemptions to offers and sales of security-based 

swaps that are based on or reference only loans or 

indexes only of loans. See Cleary Gottlieb Steen & 

Hamilton LLP (Jul. 15, 2011). As noted in the 

Proposing Release, this no-action letter will remain 

in effect for so long as the interim final exemptions 

remain in effect. 

42See Exemptions for Security-Based Swaps, 

Release No. 33–10305 (Feb. 10, 2017), 82 FR 10703 

(Feb. 15, 2017). 

43See Proposing Release (79 FR at 54234). 

44See GFI Letter. The commenter submitted a 

previous comment letter requesting exemptions 

under the Securities Act, the Exchange Act, and the 

Trust Indenture Act for security-based swap 

transactions entered into between ECPs and effected 

through any trading platform similar to the 

exemptions we adopted for security-based swap 

transactions involving an eligible clearing agency. 

See Proposing Release (79 FR at 54231 through 32). 

45 Id. 

46 Id. 

47 Id. 48See footnote 42 above and accompanying text. 

markets, sectors, and/or issuers.35 For 

example, credit default swaps can be an 

indicator of an issuer’s 

creditworthiness.36 Further, the 

commenter noted that such written 

communications may be disseminated 

about swaps based on broad indices of 

securities or issuers (which are subject 

to a different regulatory regime).37 A 

different treatment of communications 

discussing security-based swaps (i.e., 

those swaps based on a single security, 

an issuer or a narrow-based security 

index) could result in incomplete 

information being available to the 

security-based swaps market and 

securities markets generally.38

2. Comments on Other Matters 

As we noted in the Proposing 

Release,39 we previously adopted 

interim final rules to provide 

exemptions under the Securities Act, 

the Exchange Act, and the Trust 

Indenture Act of 1939 (‘‘Trust Indenture 

Act’’) 40 for those security-based swaps 

that prior to the effective date of Title 

VII were ‘‘security-based swap 

agreements’’ and are defined as 

‘‘securities’’ under the Securities Act 

and the Exchange Act due solely to the 

provisions of Title VII (collectively, the 

‘‘interim final exemptions’’).41 We 

adopted the interim final exemptions 

because, among other things, we were 

concerned about disrupting the 

operation of the security-based swaps 

market while we evaluated the 

implications for security-based swaps 

under the Securities Act and the 

Exchange Act as a result of the inclusion 

of the term ‘‘security-based swap’’ in the 

definition of ‘‘security.’’ The interim 

final exemptions expire on February 11, 

2018.42

The Proposing Release requested 

comment as to whether the expiration 

date of the interim final exemptions 

should be altered, including possibly 

shortening or further extending the 

expiration date.43 The Commission did 

not receive any comments addressing 

whether we should alter the expiration 

date of the interim final exemptions, but 

we did receive one comment that 

addressed issues relating to the interim 

final exemptions.44 The commenter 

requested that we consider adopting an 

exemption from the registration and 

other provisions of the Securities Act, 

other than the anti-fraud provisions of 

Section 17(a), for security-based swap 

transactions between ECPs.45 The 

commenter argued that an exemption 

from the registration and other 

provisions of the Securities Act is 

needed to provide legal certainty as to 

whether security-based swap 

transactions effected on security-based 

SEFs are exempt from the registration 

requirements of the Securities Act.46 In 

particular, the commenter argued that 

certain activities engaged in by the 

operator of a security-based SEF may 

create uncertainty as to the availability 

of exemptions from Section 5 of the 

Securities Act for such transactions.47

We do not believe that the exemption 

suggested by the commenter would 

provide the legal certainty the 

commenter seeks. The operator of a 

security-based SEF will facilitate 

security-based swap transactions by 

providing the trading platform on or 

through which other parties will offer 

and sell security-based swaps to each 

other. The examples provided by the 

commenter primarily relate to activities 

typically conducted by brokers or 

dealers. Market participants regularly 

communicate with each other to 

facilitate and execute transactions, and 

the examples appear to be no different 

from the activities typically conducted 

by brokers or dealers in connection with 

other private offerings of securities 

effected on trading platforms. The 

commenter did not explain why such 

activities in the context of securitybased swap transactions would affect 

the ability of market participants to rely 

upon existing Securities Act 

exemptions. In contrast, the rule we are 

adopting today addresses a unique 

feature of security-based swaps 

regulation—balancing the prohibition 

on offers and sales to non-ECPs with the 

need to disseminate information broadly 

to market participants, which may 

incidentally include non-ECPs. The 

final rule addresses the concern that 

certain communications involving SBS 

price quotes and SBS-related research 

reports could be viewed as offers to nonECPs in violation of Section 5(e) of the 

Securities Act. The exemption suggested 

by the commenter would not address 

the concern that certain 

communications could be considered 

offers to non-ECPs or provide greater 

certainty in the security-based swaps 

market because it would not address 

this concern. As such, we believe that 

the final rule better addresses this 

concern. 

We are not persuaded that there is a 

need for an exemption from the 

registration and other provisions of the 

Securities Act for security-based swap 

transactions between ECPs. As we 

finalize our regulation of security-based 

SEFs, we will remain mindful as to 

whether the regulation of particular 

communications presents barriers to the 

efficient operation of the security-based 

swaps market that are not necessary to 

protect investors. Further, we are taking 

no action as to the interim final 

exemptions, and our adoption of the 

final rule in this release will not affect 

the interim final exemptions. The 

interim final exemptions expire on 

February 11, 2018.48

B. Final Rule 

We are adopting Rule 135d under the 

Securities Act substantially as proposed, 

with one substantive addition 

concerning SBS-related research reports. 

We believe that the final rule is 

necessary and appropriate so that the 

publication or distribution of SBS price 

quotes will not cause unintended 

consequences for the operation of 

security-based swap trading platforms 

following the full implementation of 

Title VII. We also believe that the final 

rule is necessary and appropriate so that 


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2050 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Rules and Regulations 

49For security-based swap transactions involving 

an eligible clearing agency, the exemptions we 

adopted under the Securities Act, the Exchange Act, 

and the Trust Indenture Act will continue to be 

available. See Rule 239 under the Securities Act [17 

CFR 230.239], Rules 12a–10 and 12h–1(h) under the 

Exchange Act [17 CFR 240.12a–10 and 240.12h– 

1(h)], and Rule 4d–11 under the Trust Indenture 

Act [17 CFR 260.4d–11]. See also Exemptions for 

Security-Based Swaps Issued By Certain Clearing 

Agencies, Release No. 33–9308 (Mar. 30, 2012), 77 

FR 20536 (Apr. 5, 2012). These exemptions do not 

apply to security-based swap transactions not 

involving an eligible clearing agency, even if the 

security-based swaps subsequently are cleared in 

transactions involving an eligible clearing agency. 

Id. 

50The term ‘‘security-based swap’’ includes 

mixed swaps. The term ‘‘mixed swap’’ is defined 

in Section 3(a)(68)(D) of the Exchange Act [15 

U.S.C. 78c(a)(68)(D)]. See Section IV of the Product 

Definitions Adopting Release. 

51The Proposing Release discussed five examples 

of trading platforms that represent broadly the types 

of models for the trading of security-based swaps, 

including single-dealer request for quote platforms, 

aggregator-type platforms, multi-dealer request for 

quote platforms, limit order book systems, and 

electronic brokering platforms. See Proposing 

Release (79 FR at 545228 through 29). These 

examples may not represent every single trading 

method in existence today and the discussion was 

intended to give an overview of the models without 

providing the nuances of each particular model. 

Certain of these trading platforms may become 

security-based SEFs following the full 

implementation of Title VII. 

52See, e.g., Regulation SBSR—Reporting and 

Dissemination of Security-Based Swap Information, 

Release No. 34–74244 (Feb. 11, 2015), 80 FR 14564 

(Mar. 19, 2015), and Release No. 34–78321 (Jul. 14, 

2016), 81 FR 53545 (Aug. 12, 2016); Trade 

Acknowledgment and Verification of SecurityBased Swap Transactions, Release No. 34–78011 

(Jun. 8, 2016), 81 FR 39807 (Jun. 17, 2016); and 

a broker, dealer, or security-based swap 

dealer’s ability to publish or distribute 

SBS-related research reports will not be 

restricted in a manner that would limit 

the availability of information about 

security-based swaps to investors and 

other market participants. 

We note that although the final rule 

provides that the publication or 

distribution of SBS price quotes and 

SBS-related research reports will not be 

deemed to be offers for purposes of 

Section 5 of the Securities Act, the final 

rule will not otherwise affect the 

provisions of any exemptions from the 

registration requirements of the 

Securities Act. As a result, market 

participants will still need to make a 

determination as to whether an 

exemption from the registration 

requirements of the Securities Act is 

available with respect to a securitybased swap transaction, including 

whether such transaction complies with 

any applicable conditions of the 

exemption. We also note that the final 

rule applies to any communication of 

SBS price quotes or SBS-related 

research reports regardless of whether 

transactions in the relevant securitybased swaps are effected bilaterally in 

the over-the-counter market or on or 

through security-based swap trading 

platforms, or are subsequently cleared 

in transactions involving an eligible 

clearing agency.49

1. SBS Price Quotes 

The final rule allows SBS price quotes 

to be published or distributed without 

such dissemination being considered an 

offer of the relevant security-based 

swaps or any guarantees thereof for 

purposes of Section 5 of the Securities 

Act.50 The scope of dissemination 

methods covered by the final rule is 

broad. The final rule applies to the 

initial publication or distribution of SBS 

price quotes on security-based swap 

trading platforms. It also applies to any 

subsequent republication or 

redistribution of SBS price quotes on or 

through mediums other than securitybased swap trading platforms, including 

on-line information services, as it is 

possible that participants in securitybased swap trading platforms that 

receive the SBS price quotes could 

further disseminate the SBS price 

quotes without restriction. We do not 

believe that the treatment of the SBS 

price quotes under the final rule should 

depend on who republishes or 

redistributes the SBS price quotes or 

where they are republished or 

redistributed, so long as only ECPs may 

purchase the relevant security-based 

swaps. 

The final rule applies to SBS price 

quotes, which could take a number of 

forms depending on the type of trading 

platform model, including indicative 

quotes, executable quotes, bids and 

offers, and other pricing information 

and other types of quote information 

that may develop in the future. We are 

not defining the specific type of SBS 

price quotes with respect to which the 

final rule will apply because we do not 

want to limit the types of trading 

platform models that currently or may 

in the future exist.51 This approach is 

intended to allow flexibility in the final 

rule as organized markets for the trading 

of security-based swaps continue to 

develop. 

The final rule addresses price quotes 

relating to security-based swaps that are 

traded or processed on or through 

registered or exempt security-based 

SEFs and national securities exchanges 

because the Title VII provisions 

applicable to these entities, as well as 

existing requirements applicable to 

national securities exchanges, require 

them to make their trading platforms 

available or price quotes on their 

platforms available to all participants 

without limitation. 

We believe that the final rule with 

respect to SBS price quotes is necessary 

and appropriate in the public interest. 

One of the goals of Title VII is to bring 

the trading of security-based swaps onto 

regulated trading platforms, such as 

security-based SEFs and national 

securities exchanges, which should help 

advance the objective of greater 

transparency for the trading of securitybased swaps. We believe that increased 

transparency in the security-based 

swaps market could help lower 

transaction costs associated with market 

participant risk mitigating strategies and 

thereby lower the cost of capital and 

facilitate the capital formation process. 

If the publication or distribution of SBS 

price quotes is unrestricted, no 

Securities Act exemptions may be 

available with respect to transactions in 

the relevant security-based swaps 

because such communications may be 

viewed as an offer of those securitybased swaps, including to non-ECPs. 

Accordingly, we believe that the final 

rule is needed so that the publication or 

distribution of SBS price quotes will not 

cause unintended consequences for the 

operation of security-based swap trading 

platforms by affecting the ability of 

market participants to rely on available 

exemptions from the registration 

requirements of the Securities Act or 

requiring that such transactions be 

registered under the Securities Act 

because they are viewed as offers to 

non-ECPs. 

We also believe that the final rule 

with respect to SBS price quotes is 

consistent with the protection of 

investors. We believe that the final rule 

strikes an appropriate balance between 

providing more certainty to market 

participants while ensuring that the 

interests of non-ECPs are adequately 

protected. Security-based swaps that are 

not registered under the Securities Act 

are permitted to be sold only to ECPs, 

and therefore the final rule is limited to 

the publication or distribution of SBS 

price quotes that relate to security-based 

swaps that may be purchased only by 

ECPs. Treating the publication or 

distribution of SBS price quotes as not 

being offers of the relevant securitybased swaps will not harm non-ECPs 

because they will not be able to 

purchase such security-based swaps. 

Further, security-based swap 

transactions entered into solely between 

ECPs will be subject to the 

comprehensive regulatory regime of 

Title VII once it has been fully 

implemented, including transaction 

reporting, trade acknowledgment and 

verification, and business conduct 

standards.52 In addition, the final rule 


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Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Rules and Regulations 2051 

Business Conduct Standards for Security-Based 

Swap Dealers and Major Security-Based Swap 

Participants, Release No. 34–77617 (Apr. 14, 2016), 

81 FR 29959 (May 13, 2016) (‘‘Business Conduct 

Standards Adopting Release’’). The business 

conduct standards generally require, among other 

things, disclosure by security-based swap dealers 

and major security-based swap participants to 

counterparties of (i) the material risks and 

characteristics of the security-based swap, and 

certain clearing rights, (ii) the material incentives or 

conflicts of interest that a security-based swap 

dealer or major security-based swap participant 

may have in connection with the security-based 

swap, and (iii) the daily mark of the security-based 

swap (collectively, the ‘‘Business Conduct 

Standards’’). See Business Conduct Standards 

Adopting Release. The Business Conduct Standards 

also require that security-based swap dealers and 

major security-based swap participants verify that 

a counterparty meets the eligibility requirements of 

an ECP. See Business Conduct Standards Adopting 

Release. 

53See 15 U.S.C. 77q(a). 

54This approach is consistent with a commenter’s 

views. See SIFMA Letter. 

55See Securities Offering Reform, Release No. 33– 

8591 (Jul. 19, 2005), 70 FR 44722 (Aug. 3, 2005) 

(‘‘Securities Offering Reform Adopting Release’’). 

56See paragraphs (b) and (c), respectively, of 

Rules 138 and 139 under the Securities Act [17 CFR 

230.138(b), 17 CFR 230.138(c), 17 CFR 230.139(b) 

and 17 CFR 230.139(c)]. 

57See Securities Offering Reform Adopting 

Release. 

58See footnote 50 above. 

59See footnote 14 above. The definition of 

‘‘research report’’ in Rule 138 under the Securities 

Act is the same as the definition of that term in Rule 

139 under the Securities Act. See 17 CFR 230.138. 

60The security-based swaps market generally 

involves bilateral contracts privately negotiated 

between security-based swap dealers and 

sophisticated counterparties who must qualify as 

ECPs, with no secondary resale market. As a result 

of the bilateral nature of the security-based swap, 

each party could be viewed as the issuer of a 

security-based swap to the other party. 

61See footnote 56 above. 

62Footnotes 15 and 16 above and accompanying 

text address transactions where the issuer may be 

involved in the offering of the security-based swaps. 

relates to the treatment of 

communications involving SBS price 

quotes as offers for purposes of Section 

5 of the Securities Act and will preserve 

the other protections of the federal 

securities laws, including the 

Commission’s ability to pursue an 

antifraud action in the offer and sale of 

the securities under Section 17(a) of the 

Securities Act.53

The final rule also will enable 

security-based swap dealers to publish 

or distribute SBS price quotes on an 

unrestricted basis without concern that 

such publication or distribution could 

jeopardize the availability of 

exemptions from the registration 

requirements of the Securities Act for 

transactions involving the relevant 

security-based swaps. Unrestricted 

access to SBS price quotes will improve 

market transparency by providing all 

investors with the same information on 

the pricing of security-based swap 

transactions. 

Therefore, we believe that the final 

rule with respect to SBS price quotes is 

necessary or appropriate in the public 

interest, and consistent with the 

protection of investors. 

2. SBS-Related Research Reports 

We believe that written 

communications discussing securitybased swaps that fall within the 

definition of ‘‘research report’’ in Rule 

139(d) under the Securities Act should 

be treated similarly to other research 

involving securities offered pursuant to 

exemptions from the registration 

requirements of the Securities Act and 

should not be considered to be an 

offer.54 We previously have noted the 

value of securities research in providing 

information to investors and the 

securities markets generally.55 We 

believe that failing to exclude such 

written communications from the 

definition of ‘‘offer’’ under the 

Securities Act could have an adverse 

effect on the information available to 

investors and other market participants 

in the security-based swaps market, 

credit markets and securities markets 

generally. Further, we believe that 

written communications discussing 

security-based swaps and security-based 

swap agreements should have consistent 

regulatory treatment. 

The Research Rules generally apply in 

the context of registered offerings. They 

also apply in the context of two types 

of unregistered offerings: Rule 144A and 

Regulation S offerings.56 Under the 

Research Rules, research reports 

meeting certain conditions are not 

considered offers or general solicitation 

or general advertising in connection 

with offerings relying on Rule 144A and 

are not deemed to be directed selling 

efforts or to be inconsistent with the 

offshore transaction requirements of 

Regulation S. The Commission 

addressed these types of unregistered 

offerings in the Research Rules because 

it was concerned that the restrictions in 

Rule 144A and in Regulation S had 

resulted in brokers and dealers 

unnecessarily withholding regularly 

published securities research.57

Security-based swaps offerings typically 

are not transacted in registered offerings 

or in reliance on Rule 144A or 

Regulation S and, as a result, the 

Research Rules currently do not cover 

written communications discussing 

security-based swaps. 

The final rule imposes several 

conditions on the publication or 

distribution of such written 

communications. First, the written 

communications must discuss covered 

SBS.58 Second, the broker, dealer, or 

security-based swap dealer must 

publish or distribute research reports on 

the issuer underlying the security-based 

swap or its securities in the regular 

course of its business and the 

publication or distribution of the 

research report must not represent the 

initiation of publication of research 

reports about such issuer or its 

securities or the reinitiation of such 

publication following discontinuation of 

publication of such research reports. 

Third, the written communications 

must be a ‘‘research report’’ as defined 

in Rule 139(d) under the Securities 

Act.59 The final rule clarifies that the 

term ‘‘issuer’’ as used in the definition 

of ‘‘research report’’ is (i) the issuer of 

a security or loan referenced in the 

security-based swap, (ii) each issuer or 

issuer of a security in a narrow-based 

security index referenced in the 

security-based swap, or (iii) each issuer 

referenced in the security-based swap 

(each, a ‘‘Referenced Issuer’’). This 

provision makes clear that the ‘‘issuer’’ 

referenced in the definition of ‘‘research 

report’’ for purposes of the final rule is 

the Referenced Issuer and not the 

counterparties to the security-based 

swap.60

The conditions to the final rule are 

similar to the conditions that apply to 

research reports covered by Rules 138 

and 139 in the context of unregistered 

offerings transacted in reliance on Rule 

144A or Regulation S.61 Rules 138 and 

139 include other conditions that apply 

to communications used in unregistered 

offerings transacted in reliance on Rule 

144A and Regulation S that limit the 

types of issuers whose securities may be 

the subject of the securities research that 

is covered by the Research Rules. 

However, in the context of securitybased swaps, a Referenced Issuer 

typically is not involved in the offering 

of the security-based swap.62 As such, 

we do not believe that it is necessary to 

limit the types of issuers that may be the 

subject of SBS-related research reports. 

We believe that the final rule with 

respect to SBS-related research reports 

is necessary and appropriate in the 

public interest. As noted above, absent 

the provisions of the final rule, 

unrestricted publication or distribution 

of SBS-related research reports may 

affect the availability of Securities Act 

exemptions from registration and may 

constitute making ‘‘offers’’ to non-ECPs. 

Accordingly, we believe that the final 

rule is necessary so that the publication 

or distribution of SBS-related research 

reports will not impede the continuous 


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2052 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Rules and Regulations 

63See Securities Offering Reform Adopting 

Release. 

64See 5 U.S.C. 553(d). 65See 5 U.S.C. 553(d)(1). 66Section 2(b) of the Securities Act requires that 

the Commission, when engaging in rulemaking that 

requires it to consider whether an action is 

necessary or appropriate in the public interest, to 

also consider whether the action will promote 

efficiency, competition, and capital formation. 15 

U.S.C. 77b(b). We have integrated our consideration 

of these issues into this economic analysis. 

67See footnote 52 above. 

68See Business Conduct Standards Adopting 

Release. 

69 Id. 

70 Id. 

71 Id. 

72See footnote 41 above and accompanying text. 

flow of essential information into the 

security-based swaps market and 

security markets generally, affect the 

ability of market participants to rely on 

available exemptions from the 

registration requirements of the 

Securities Act, or require registration of 

the transactions under the Securities 

Act because they are viewed as offers to 

non-ECPs. 

We also believe that the final rule is 

consistent with the protection of 

investors. The availability of the final 

rule is conditioned on the satisfaction of 

certain requirements similar to the 

Research Rules. These requirements 

were included in the Research Rules to 

permit the dissemination of securities 

research around the time of an offering 

while avoiding offering abuses.63 We 

believe that these requirements, which 

were designed to ensure that 

appropriate investor protections are 

maintained, will be similarly effective 

in avoiding offering abuses in the 

security-based swaps context. Further, 

the final rule applies with respect to 

covered SBS. Excluding the publication 

or distribution of SBS-related research 

reports from the definition of ‘‘offer’’ 

will not harm non-ECPs because they 

will not be able to purchase the relevant 

security-based swaps, as discussed 

above. Finally, the final rule has no 

effect on other provisions of the federal 

securities laws, including the 

application of the registration 

requirements of the Securities Act to 

transactions involving securities 

referenced in security-based swaps as 

well as the continued application of the 

antifraud provisions of the federal 

securities laws to transactions in 

security-based swaps or the securities 

referenced in such security-based 

swaps. 

Therefore, we believe that the final 

rule with respect to SBS-related 

research reports is necessary or 

appropriate in the public interest, and 

consistent with the protection of 

investors. 

III. Other Matters 

If any of the provisions of these rules, 

or the application thereof to any person 

or circumstance, is held to be invalid, 

such invalidity shall not affect other 

provisions or application of such 

provisions to other persons or 

circumstances that can be given effect 

without the invalid provision or 

application. 

Section 553(d) of the Administrative 

Procedure Act generally requires an 

agency to publish an adopted rule in the 

Federal Register 30 days before it 

becomes effective.64 This requirement 

does not apply, however, if the adopted 

rule is a ‘‘substantive rule which grants 

or recognizes an exemption or relieves 

a restriction.’’ 65 We find that the final 

rule is a substantive rule which relieves 

a restriction. As explained above, under 

current law, there is uncertainty as to 

whether the publication or distribution 

of SBS price quotes or SBS-related 

research reports could be viewed as an 

‘‘offer’’ of the relevant security-based 

swaps within the meaning of the 

Securities Act. If such communications 

are deemed to be an offer, the relevant 

security-based swaps consequently 

would not be able to be offered or sold 

absent an effective registration 

statement under the Securities Act. The 

final rule relieves this restriction and 

dispels market uncertainty by providing 

that the publication or distribution of 

SBS price quotes and SBS-related 

research reports will not be deemed 

offers of the relevant security-based 

swaps for purposes of Section 5 of the 

Securities Act. 

IV. Economic Analysis 

We are sensitive to the economic 

consequences and effects, including 

costs and benefits, of our rules. The 

discussion below addresses the 

potential economic consequences and 

effects of the final rule and alternatives, 

including the costs and benefits, as well 

as the potential effects on efficiency, 

competition, and capital formation.66

The final rule does not itself establish 

the scope or nature of the substantive 

requirements for security-based swaps 

following the full implementation of 

Title VII or their related costs and 

benefits. The rules implementing the 

substantive requirements under Title VII 

will be subject to their own economic 

analysis. The costs and benefits 

described below therefore are those that 

may arise in connection with the final 

rule. 

A. Baseline 

To assess the economic impact of the 

final rule, we are using as our baseline 

the regulation of security-based swaps 

as it exists at the time of this release, 

taking into account applicable rules 

adopted by the Commission, including 

the interim final exemptions affecting 

security-based swaps under the 

Securities Act and the Exchange Act. 

As part of the economic analysis in 

the Business Conduct Standards 

Adopting Release, we provided an 

extensive description of the securitybased swaps market, including a 

detailed analysis of the participants in 

the security-based swaps market and the 

levels of security-based swaps trading 

activity.67 The present release addresses 

a narrower aspect of the security-based 

swaps market, and we refer market 

participants to the more comprehensive 

discussion set forth in the Business 

Conduct Standards Adopting Release for 

additional context. In particular, we 

noted in the Business Conduct 

Standards Adopting Release that the 

single-name credit default swaps 

market—a significant part of the 

security-based swaps market generally— 

involves thousands of distinct 

counterparties but with a heavy 

concentration of transactions among a 

relatively small number of dealer 

entities.68 The notional size of the 

single-name credit default swaps market 

is in the trillions of dollars annually, 

corresponding to hundreds of thousands 

of individual transactions, and with 

approximately 80% of transactions 

between dealers.69 Among the nondealer market participants, private 

funds are the largest constituent group, 

followed by Dodd-Frank Act-defined 

special entities and investment 

companies registered under the 

Investment Company Act of 1940.70

More broadly, the analysis shows that 

although the dollar volume of 

transactions in the security-based swaps 

market is large, there are fewer market 

participants than for other securities 

markets.71

As noted above,72 we adopted the 

interim final exemptions to exempt 

offers and sales of security-based swap 

agreements that became security-based 

swaps on the effective date of Title VII 

from all provisions of the Securities Act, 

other than the Section 17(a) anti-fraud 

provisions, as well as from the Exchange 

Act registration requirements and from 

the provisions of the Trust Indenture 

Act, provided that the transactions are 

entered into solely between ECPs. 

Currently, certain market participants 

may rely on the interim final 

exemptions to continue to enter into 

security-based swap transactions as they 


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73See Section 3(a)(68) of the Exchange Act for the 

definition of ‘‘security-based swap.’’ 15 U.S.C. 

78c(a)(68). See footnote 41 above regarding the 

definition of ‘‘security-based swap agreement.’’ 

74The amendments to the definition of ‘‘eligible 

contract participant’’ increased the dollar threshold 

for certain persons and, with respect to natural 

persons, replaced a ‘‘total assets’’ test with an 

‘‘amounts invested on a discretionary basis’’ test. 

See Section 1a(12) of the Commodity Exchange Act 

[7 U.S.C. 1a(12)], as in effect prior to the effective 

date of Title VII, and Section 1(a)(18) of the 

Commodity Exchange Act, as re-designated and 

amended by Section 721 of the Dodd-Frank Act. 

The definition of the term ‘‘eligible contract 

participant’’ in the Securities Act and in the 

Exchange Act refers to the definition of ‘‘eligible 

contract participant’’ in the Commodity Exchange 

Act. See footnote 7 above. 

75See 15 U.S.C. 77d(a)(2). 

76See footnote 8 above and accompanying text. 

77 Given that these exemptions, including the 

exemption in Section 4(a)(2) of the Securities Act, 

are self-executing, we do not have any data or other 

quantifiable information regarding the number of 

market participants that may be effecting securitybased swap transactions in reliance on these 

exemptions. However, we believe that a significant 

portion of market participants engaging in these 

transactions are eligible to rely on the interim final 

exemptions because the vast majority of securitybased swap transactions involve single-name credit 

default swaps, which would have been ‘‘securitybased swap agreements’’ prior to the effective date 

of Title VII. See footnote 73 above and 

accompanying text. 

78The baseline used in this analysis takes into 

account the interim final exemptions and the fact 

that Title VII has not been fully implemented. As 

noted above, unless further action is taken, the 

interim final exemptions will expire on February 

11, 2018. In the discussion of alternatives below, we 

consider the economic consequences and effects of 

the final rule without the interim final exemptions. 

79See footnote 41 above and accompanying text. 

In that regard we note, for example, that securitybased swaps based on single loans would not be 

within the definition of ‘‘security-based swap 

agreement’’ in effect prior to the effective date of 

Title VII. 

did prior to the effective date of Title VII 

without concern they would have to 

comply with the provisions of the 

Securities Act. 

The interim final exemptions are 

available, however, only for certain 

types of transactions involving securitybased swaps. The security-based swaps 

covered by the interim final exemptions 

are only those that would have been 

‘‘security-based swap agreements’’ prior 

to the effective date of Title VII, which 

is a narrower category of security-based 

swaps than under Title VII.73 In 

addition, the persons who may enter 

into security-based swaps covered by 

the interim final exemptions may be 

different from those entering into 

‘‘security-based swap agreements’’ prior 

to the effective date of Title VII because 

the definition of ‘‘eligible contract 

participant’’ under Title VII is narrower 

than the pre-Title VII definition.74 Any 

security-based swap transaction that 

cannot rely on the interim final 

exemptions would have to rely on 

another available exemption from the 

registration requirements of the 

Securities Act, such as the exemption in 

Section 4(a)(2),75 or would have to be 

registered under the Securities Act. 

However, no Securities Act exemptions 

are available with respect to securitybased swap transactions involving nonECPs because Title VII amended the 

Securities Act to require that all offers 

and sales of security-based swaps to 

non-ECPs must be registered under the 

Securities Act.76

The interim final exemptions are selfexecuting and as such are available 

without any action by the Commission 

or its staff. As a result, market 

participants must make their own 

determinations as to whether such 

exemptions are available with respect to 

a particular security-based swap 

transaction. Given that such exemptions 

are self-executing, we do not have any 

data or other quantifiable information 

regarding the use of such exemptions, 

including which market participants are 

effecting transactions in reliance on 

such exemptions or the number of 

transactions effected in reliance on such 

exemptions. 

If we do not take other action, the 

interim final exemptions will expire on 

February 11, 2018. Although the 

analysis below considers the economic 

consequences and effects of the final 

rule under the current baseline, which 

includes the interim final exemptions, 

we also consider the potential impact of 

the final rule without the interim final 

exemptions in our discussion of 

alternatives. 

B. Analysis of the Final Rule 

Under the final rule, certain 

communications involving securitybased swaps are not considered ‘‘offers’’ 

for purposes of Section 5 of the 

Securities Act. However, unlike the 

interim final exemptions, the final rule 

is not itself an exemption from the 

registration requirements of the 

Securities Act. As a result, while the 

types of communications covered by the 

final rule are not considered offers, 

market participants engaging in any 

security-based swap transaction will 

have to either satisfy the conditions of 

existing exemptions under the 

Securities Act or register such 

transactions under the Securities Act. 

Security-based swaps are transacted 

through hundreds of thousands of 

individual transactions annually, but 

because the available registration 

exemptions are self-executing, we do 

not know what fraction of market 

participants that engage in these 

transactions currently rely on the 

interim final exemptions as opposed to 

other exemptions from registration 

under the Securities Act.77 For 

transactions involving security-based 

swaps that do not satisfy the conditions 

of the interim final exemptions, the final 

rule will assist market participants in 

evaluating how they should analyze 

certain communications that may affect 

their transactions. In particular, market 

participants will be able to assess the 

availability of exemptions from the 

registration requirements of the 

Securities Act without concern that 

certain communications will affect the 

availability of such exemptions. 

The final rule is self-executing in that 

the publication or distribution of SBS 

price quotes or SBS-related research 

reports is excluded from the definition 

of ‘‘offer’’ and thereby will not be 

deemed to be an offer to buy or 

purchase the security-based swaps that 

are the subject of the SBS price quotes 

or SBS-related research reports or any 

guarantees of such security-based swaps 

that are securities for purposes of 

Section 5 of the Securities Act without 

any action by the Commission or its 

staff. Because the final rule is selfexecuting, the only cost of being able to 

rely on the final rule is to determine its 

applicability. In addition, the final rule 

does not create any new filing, 

reporting, recordkeeping, or disclosure 

reporting requirements for any market 

participants. 

Excluding the types of 

communications covered by the final 

rule from the definition of ‘‘offer’’ will 

have minimal economic consequences 

or effects on the ability of market 

participants to enter into security-based 

swap transactions compared with the 

baseline.78 For example, as compared to 

the baseline, the final rule does not 

affect the ability of market participants 

to enter into security-based swap 

transactions in reliance on available 

exemptions under the Securities Act, 

such as the exemption in Section 

4(a)(2). While the interim final 

exemptions have limited conditions,79

which differ from the conditions of the 

exemption under Section 4(a)(2) 

(including with respect to the 

communications that are the subject of 

the final rule), some security-based 

swap transactions engaged in after the 

effective date of Title VII may have been 

effected in reliance on Section 4(a)(2) 

rather than in reliance on the interim 

final exemptions. Further, the 

protections that currently exist under 

the interim final exemptions and under 

Section 4(a)(2) still apply. For example, 

the interim final exemptions do not 

limit or otherwise affect the antifraud 


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2054 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Rules and Regulations 

80The determination of whether a person is an 

ECP is part of the Business Conduct Standards, 

which require that security-based swap dealers and 

major security-based swap participants verify the 

ECP eligibility of their security-based swap 

counterparties. See footnote 52 above. 

81See footnote 52 above. The Commission has 

adopted rules to implement the Business Conduct 

Standards provisions of the Dodd-Frank Act. 

82 Id. 

83For instance, under the Business Conduct 

Standards, the required disclosure of the daily mark 

consists of, for a cleared security-based swap, 

providing counterparties with the daily end-of-day 

settlement price received by the security-based 

swap dealer or major security-based swap 

participant from the appropriate clearing agency, 

and, for an uncleared security-based swap, the 

midpoint between the bid and offer prices for a 

particular security-based swap, or the calculated 

equivalent of the midpoint as of the close of 

business. Id. 

provisions of the federal securities laws, 

including Section 17(a) of the Securities 

Act. 

The final rule does not impose new 

requirements on market participants. 

Further, because the final rule is 

available with respect to any securitybased swap transaction involving an 

ECP, we do not believe that the final 

rule impairs competition between the 

different types of trading venues and 

methods that differ in the extent to 

which they make SBS price quotes 

available to the public and differ in their 

level of public SBS price quotes. 

Moreover, we believe that the final rule 

furthers the goal of Title VII to bring the 

trading of security-based swaps onto 

regulated trading platforms, which 

should help advance the objective of 

greater transparency and a more 

competitive environment for the trading 

of security-based swaps. As a result, we 

believe that increased transparency and 

competitiveness in the security-based 

swaps market could help lower 

transaction costs associated with market 

participant hedging (risk mitigating) 

strategies and thereby lower the cost of 

capital and facilitate the capital 

formation process. We also note that 

investors and other users of SBS-related 

research reports may benefit from the 

additional information provided by 

security-based swaps research included 

in research on other securities. 

We believe that the costs associated 

with the final rule are minimal. The 

final rule does not impose additional 

costs on market participants to 

determine ECP status.80 In addition, 

non-ECPs are not permitted to purchase 

any security-based swaps that are the 

subject of the SBS price quotes or SBSrelated research reports within the 

scope of the final rule, and the 

Securities Act registration requirements 

continue to apply to security-based 

swap transactions involving such nonECPs. As a result of these limitations, 

the exclusion of the SBS price quotes 

and SBS-related research reports from 

being deemed offers should not increase 

the potential for unlawful sales of 

security-based swaps to non-ECPs. 

We recognize that a consequence of 

the final rule is that the vast majority of 

offers and sales of security-based swap 

transactions that potentially could be 

implicated by the final rule are unlikely 

to be registered under the Securities Act 

(with the consequent unavailability of 

certain remedies). As a result, and as is 

the case under the interim final 

exemptions, there will not be an 

effective registration statement under 

the Securities Act covering the offer and 

sale of such security-based swaps. A 

registration statement would provide 

certain information about the market 

participants, the security-based swap 

contract terms, and the identification of 

the particular reference securities, 

issuers, or loans underlying the 

security-based swaps. Further, while an 

investor will be able to pursue an 

antifraud action in connection with the 

purchase and sale of the securities in 

these security-based swap transactions 

under Section 10(b) of the Exchange 

Act, an investor will not be able to 

pursue civil remedies under Section 11 

or 12(a)(2) of the Securities Act because 

the offer and sale of the securities in 

these security-based swap transactions 

will not be registered under the 

Securities Act. In addition, an investor 

may be limited in its ability to pursue 

civil remedies under Section 12(a)(1) of 

the Securities Act because the 

publication or distribution of quotes for 

security-based swaps will not be 

deemed to be an offer for purposes of 

Section 5 of the Securities Act. 

However, the Commission could still 

pursue an antifraud action in the offer 

and sale of the securities in these 

security-based swap transactions under 

Section 17(a) of the Securities Act. 

We note that the Business Conduct 

Standards require, among other things, 

that certain disclosures be made to 

certain ECPs.81 Such disclosures 

include (i) the material risks and 

characteristics of the security-based 

swap, and certain clearing rights, (ii) the 

material incentives or conflicts of 

interest that a security-based swap 

dealer or major security-based swap 

participant may have in connection 

with the security-based swap, and (iii) 

the daily mark of the security-based 

swap.82 While the information to be 

conveyed in the daily mark is not 

equivalent to that in a registration 

statement, we believe it could provide a 

counterparty with a useful and 

meaningful reference point against 

which to assess, among other things, the 

calculation of variation margin for a 

security-based swap or portfolio of 

security-based swaps, and otherwise 

inform the counterparty’s understanding 

of its financial relationship with the 

security-based swap dealer or major 

security-based swap participant.83

Moreover, because under the Business 

Conduct Standards security-based swap 

dealers and major security-based swap 

participants are required to provide the 

same valuation to all of their 

counterparties, and because 

counterparties could interact with 

multiple security-based swap dealers 

and major security-based swap 

participants, counterparties should have 

greater confidence of equal treatment as 

they now have the ability to observe 

when valuations differ among securitybased swap dealers and major securitybased swap participants. 

As noted above, to the extent that a 

security-based swap transaction does 

not meet the conditions of the interim 

final exemptions, the counterparties to 

such transaction likely are effecting the 

transaction in reliance on an available 

exemption from the registration 

requirements of the Securities Act. The 

final rule will benefit these 

counterparties because they will be able 

to assess the availability of an 

exemption from the registration 

requirements of the Securities Act 

without concern that the publication or 

distribution of SBS price quotes or SBSrelated research reports for the securitybased swap that is the subject of the 

transaction may compromise the 

availability of an exemption. The final 

rule also will benefit these 

counterparties by clarifying that the 

publication or distribution of SBS price 

quotes or SBS-related research reports 

does not constitute an offer of the 

security-based swaps that are the subject 

of such SBS price quotes or SBS-related 

research reports to non-ECPs. As noted 

above, no exemptions from the 

registration requirements of the 

Securities Act are available with respect 

to offers of security-based swaps to nonECPs. As a result, without the final rule, 

these counterparties would be required 

to incur the costs associated with 

registration under the Securities Act. 

Unlike an equity or debt security, a 

security-based swap transaction could 

entail an ongoing financial commitment 

(i.e., economic exposure) between the 

dealer (or its affiliate) and the ECP 

client, whereby a client loss could result 

in a dealer gain of equal measure. The 


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Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Rules and Regulations 2055 

84See footnote 61 above and accompanying text. 

dealer (or its affiliate) would, at least 

initially, take the opposite economic 

exposure as that of the client, who may 

be entering into the transaction based on 

information provided by the dealer’s 

research or the research of its affiliate. 

In such instances, the research may not 

be considered independent. 

While the final rule’s treatment of 

SBS-related research reports could 

facilitate these types of transactions, 

which have the potential for a conflict 

of interest, we note that such 

communications are permissible today 

under the interim final exemptions, and 

that the additional disclosures required 

by the Business Conduct Standards 

should make such potential conflicts 

transparent to ECPs. Further, the 

Business Conduct Standards require 

detailed descriptions of any material 

risks and other characteristics of a 

security-based swap, which may 

mitigate any bias introduced in the SBSrelated research reports. 

It remains possible, however, that 

some market participants may use the 

provisions under the final rule to 

disseminate SBS-related research 

reports with the intent of making an 

offer or for solicitation purposes, 

particularly given the lower cost of 

disseminating these reports compared to 

registration statements. The potential for 

market participants to misuse the final 

rule in this manner should be mitigated 

by the fact that the final rule covers only 

communications made in connection 

with security-based swaps that may be 

sold only to ECPs and would not cover 

other security-based swaps that may be 

offered or sold to non-ECPs. Further, the 

final rule incorporates other safeguards 

similar to those in the Research Rules.84

C. Alternatives Considered 

One alternative to the final rule that 

we considered was to take no action at 

this time to address issues arising under 

the Securities Act for certain 

communications involving securitybased swaps. This alternative would 

affect all security-based swap 

transactions, including those currently 

relying on the interim final exemptions. 

At this time, all security-based swap 

transactions either must be registered 

under the Securities Act or rely on an 

available exemption from registration. If 

we take no action with respect to the 

treatment of communications involving 

security-based swaps, the publication or 

distribution of SBS price quotes or SBSrelated research reports could be 

deemed to constitute an offer, an offer 

to sell, or a solicitation of an offer to buy 

or purchase security-based swaps. If 

considered offers, such communications 

could affect the availability of 

exemptions from the registration 

requirements of the Securities Act. If no 

Securities Act exemptions are available 

with respect to a security-based swap 

transaction, such transactions would 

require registration. 

We believe that taking no action could 

disrupt and impose unnecessary costs 

on this segment of the security-based 

swaps market because it would 

perpetuate uncertainty as to whether 

certain communications involving SBS 

price quotes or SBS-related research 

reports will be deemed offers for 

purposes of Section 5 of the Securities 

Act. Without the final rule, the risk that 

these communications will be deemed 

offers might lead some market 

participants either not to engage in these 

security-based swap transactions, which 

could impede the market, or to register 

the offer and sale of the security-based 

swap transactions, which would likely 

increase costs for market participants. 

This risk also may lead some market 

participants to withhold or limit the 

publication or distribution of SBSrelated research reports, which could 

reduce the amount and quality of the 

information available to investors and 

other market participants in the 

security-based swaps market, credit 

markets and securities markets 

generally. 

We believe that the final rule 

facilitates capital formation and 

promotes efficiency by lowering the 

costs of security-based swap 

transactions relative to what would be 

required without the final rule. Without 

the final rule and following the 

expiration of the interim final 

exemptions, we believe that the 

operation of the registration provisions 

of the Securities Act could have 

unintended consequences for the 

operation of security-based swap trading 

platforms and the ability of market 

participants to enter into these securitybased swap transactions in reliance on 

available exemptions from the 

registration requirements of the 

Securities Act following the full 

implementation of Title VII. Following 

the expiration of the interim final 

exemptions, we anticipate that the final 

rule will facilitate a more efficient 

market place for these security-based 

swap transactions. 

Without the final rule, a market 

participant may choose not to continue 

to participate in these types of 

transactions if compliance with the 

registration requirements of the 

Securities Act is required. This would 

likely curtail the use of trading 

platforms and venues that make use of 

broad communications methods for the 

public dissemination of SBS price 

quotes. As noted above, one of the goals 

of Title VII is to bring the trading of 

security-based swaps onto regulated 

trading platforms. In the absence of 

applicable Securities Act exemptions for 

a security-based swap transaction 

because the dissemination of price 

quotes for security-based swaps could 

be viewed as offers of those securitybased swaps, the costs of the required 

registration of such transactions under 

the Securities Act could limit the 

incentive for market participants to 

engage in security-based swap 

transactions on regulated trading 

platforms. In response to the lack of an 

available exemption from registration, 

some market participants may also seek 

to restructure their operations to 

minimize their transactions in, or 

contact with, the United States in an 

effort to avoid having to register these 

transactions under the Securities Act. If 

market participants were to determine 

not to engage in security-based swap 

transactions due to the lack of an 

available exemption from registration, 

or to restructure their operations and 

thus avoid U.S. exposure because of the 

lack of such an exemption, such actions 

could affect the number of price quotes 

for, and the liquidity of, certain types of 

security-based swaps, which could have 

a detrimental effect on the ability of U.S. 

market participants to obtain credit 

exposure or hedge risk, and could have 

a more general adverse impact on the 

liquidity and price discovery of 

security-based swap transactions. This 

effect would be inconsistent with the 

tenet of increased transparency that is 

central to the legislative intent of Title 

VII. 

If market participants continue to 

engage in security-based swap 

transactions without the final rule and 

register these transactions under the 

Securities Act, they would incur 

increased compliance costs associated 

with such registration. Additionally, 

there is unlikely to be a commensurate 

benefit to registration given that the 

investors typically in greater need of the 

investor protections provided by 

registration are likely not ECPs, and 

those investors are not eligible to 

purchase any security-based swaps that 

are the subject of the communications 

within the scope of the final rule. 

While the use of a shelf registration 

statement may be available to some 

participants and would lessen the costs 

of registration compared to the costs for 

participants who were not able to use a 

shelf registration statement, there would 

be costs whether or not a shelf 


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2056 Federal Register / Vol. 83, No. 10 / Tuesday, January 16, 2018 / Rules and Regulations 

85Certain market participants could reduce the 

registration burden by using the Form S–3 

registration statement for their securities offerings. 

We previously have estimated that 50 or fewer 

entities ultimately may have to register with us as 

security-based swap dealers. See Business Conduct 

Standards Adopting Release. These entities (or their 

affiliates) are likely to be seasoned or well-known 

seasoned issuers that are eligible to use the Form 

S–3 registration statement for their securities 

offerings. In particular, these entities (or their 

affiliates) are likely to have a Form S–3 shelf 

registration statement that is effective under the 

Securities Act. A shelf registration statement covers 

the offer and sale of securities that are not 

necessarily to be sold in a single offering 

immediately upon effectiveness; instead, the 

securities are typically sold in a number of 

‘‘takedowns’’ over a period of time or on a 

continuous basis. A shelf registration statement 

allows issuers to conduct multiple types and 

amounts of securities offerings using the same 

registration statement. If these entities (or their 

affiliates) are required to register the offer and sale 

of the securities in security-based swap 

transactions, they would likely use their shelf 

registration statements for the offerings. For 

takedowns off their shelf registration statements, an 

entity (or its affiliate) would file a prospectus 

supplement under the Securities Act that contains 

the specific terms of the offering. As a result of the 

shelf registration procedure, these entities 

(including their affiliates) would incur lower costs 

relating to the takedown for each security-based 

swap transaction than they would otherwise incur 

if they had to use a non-shelf registration statement 

for the security-based swap transactions. While the 

use of a shelf registration statement would reduce 

the registration burden for qualifying market 

participants, it may not be available to all market 

participants. 

86 44 U.S.C. 3501 et seq. 

87 44 U.S.C. 3507(d) and 5 CFR 1320.11. 

88 5 U.S.C. 605(b). 

registration statement is available.85

Given the eligibility criteria for using a 

shelf registration statement, the use of a 

shelf registration statement is likely to 

be available to a majority of market 

participants. However, to the extent that 

there is a decrease in the dissemination 

of certain communications related to 

security-based swaps in the absence of 

the final rule, such a decline may be 

concentrated among market participants 

who cannot lower their costs by using 

a shelf registration statement. 

Another alternative to the final rule 

would be to deem only SBS price quotes 

as not constituting offers for purposes of 

Section 5 of the Securities Act. To the 

extent SBS-related research reports are 

deemed to be offers for purposes of 

Section 5, dealers or their affiliates may 

not include information about securitybased swaps in research reports, which 

may otherwise be useful to some 

investors. However, inclusion of this 

information may create conflicts of 

interest problems unique to the securitybased swaps market, as discussed above. 

V. Paperwork Reduction Act 

The final rule does not impose any 

new ‘‘collections of information’’ within 

the meaning of the Paperwork 

Reduction Act of 1995 (‘‘PRA’’),86 nor 

does it create any new filing, reporting, 

recordkeeping, or disclosure reporting 

requirements. Accordingly, we are not 

submitting the final rule to the Office of 

Management and Budget for review in 

accordance with the PRA.87

VI. Regulatory Flexibility Act 

Certification 

Under Section 605(b) of the 

Regulatory Flexibility Act,88 we 

certified that proposed Rule 135d under 

the Securities Act would not have a 

significant economic impact on a 

substantial number of small entities. 

This certification, including our basis 

for the certification, was included in 

Part VII of the Proposing Release. We 

solicited comments on the potential 

impact of the proposed rule on small 

entities but received none. We are 

adopting this rule as proposed with one 

substantive addition concerning SBSrelated research reports. We do not 

believe that this substantive addition 

alters the basis upon which the 

certification in the Proposing Release 

was made. Accordingly, we certify that 

Rule 135d under the Securities Act will 

not have a significant economic impact 

on a substantial number of small 

entities. 

VII. Statutory Authority 

The rule described in this release is 

being adopted under the authority set 

forth in Sections 5, 19, and 28 of the 

Securities Act. 

List of Subjects in 17 CFR Part 230 

Reporting and recordkeeping 

requirements, Securities. 

For the reasons set out above, we are 

amending title 17, chapter II of the Code 

of Federal Regulations as follows: 

PART 230—GENERAL RULES AND 

REGULATIONS, SECURITIES ACT OF 

1933 

■ 1. The authority citation for part 230 

continues to read, in part, as follows: 

Authority: 15 U.S.C. 77b, 77b note, 77c, 

77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z–3, 77sss, 

78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o–7 note, 

78t, 78w, 78ll(d), 78mm, 80a–8, 80a–24, 80a– 

28, 80a–29, 80a–30, and 80a–37, and Pub. L. 

112–106, sec. 201(a), sec. 401, 126 Stat. 313 

(2012), unless otherwise noted. 

* * * * * 

■ 2. Section 230.135d is added to read 

as follows: 

§ 230.135d Communications involving 

security-based swaps. 

(a) For the purposes only of Section 

5 of the Act (15 U.S.C. 77e), the 

publication or distribution of quotes 

relating to security-based swaps that 

may be purchased only by persons who 

are eligible contract participants (as 

defined in Section 1a(18) of the 

Commodity Exchange Act (7 U.S.C. 

1a(18))) and are traded or processed on 

or through a trading system or platform 

that either is registered as a national 

securities exchange under Section 6(a) 

of the Securities Exchange Act of 1934 

(15 U.S.C. 78f(a)) or as a security-based 

swap execution facility under Section 

3D(a) of the Securities Exchange Act of 

1934 (15 U.S.C. 78c–4(a)), or is exempt 

from registration as a security-based 

swap execution facility under Section 

3D(a) of the Securities Exchange Act of 

1934 pursuant to a rule, regulation, or 

order of the Commission shall not be 

deemed to constitute an offer, an offer 

to sell, or a solicitation of an offer to buy 

or purchase any security-based swap or 

any guarantee of such security-based 

swap that is a security; and 

(b) For the purposes only of Section 

5 of the Act (15 U.S.C. 77e), a broker, 

dealer, or security-based swap dealer’s 

publication or distribution of a research 

report (as defined in § 230.139(d)) that 

discusses security-based swaps that may 

be purchased only by persons who are 

eligible contract participants (as defined 

in Section 1a(18) of the Commodity 

Exchange Act (7 U.S.C. 1a(18))) shall not 

be deemed to constitute an offer, an 

offer to sell, or a solicitation of an offer 

to buy or purchase any security-based 

swap or any guarantee of such securitybased swap that is a security, provided 

that the broker, dealer, or security-based 

swap dealer publishes or distributes 

research reports on the issuer 

underlying the security-based swap or 

its securities in the regular course of its 

business and the publication or 

distribution of the research report does 

not represent the initiation of 

publication of research reports about 

such issuer or its securities or the 

reinitiation of such publication 

following discontinuation of publication 

of such research reports. For purposes of 

this section, the term issuer as used in 

the definition of ‘‘research report’’ 

means the issuer of any security or loan 

referenced in the security-based swap, 

each issuer of a security in a narrowbased security index referenced in the 

security-based swap, or each issuer 

referenced in the security-based swap. 

By the Commission. 

Dated: January 5, 2018. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–00347 Filed 1–12–18; 8:45 am] 

BILLING CODE 8011–01–P 


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