Document ID: SEC-2013-0317-0001
Agency: sec
Document Type: Notice
Title: Extensions of Temporary Exemptions: Revision of the Definition of Security to Encompass Security-Based Swaps
Posted Date: 2013-02-13T05:00Z

[Federal Register Volume 78, Number 30 (Wednesday, February 13, 2013)]
[Notices]
[Pages 10218-10220]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03214]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68864; File No. S7-27-11]

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

February 7, 2013.

I. Introduction

    On July 1, 2011, the Securities and Exchange Commission 
(``Commission'') issued an order granting temporary exemptive relief 
from compliance with certain provisions of the Securities Exchange Act 
of 1934 (``Exchange Act'') in connection with the revision of the 
Exchange Act definition of ``security'' to encompass security-based 
swaps (``Exchange Act Exemptive Order'').\1\ Certain temporary 
exemptions contained in the Exchange Act Exemptive Order are set to 
expire upon the compliance date for final rules further defining the 
terms ``security-based swap'' and ``eligible contract participant,'' 
which is scheduled to occur on February 11, 2013 (``Expiring Temporary 
Exemptions'').\2\ The

[[Page 10219]]

Commission is extending the expiration date for these Expiring 
Temporary Exemptions until February 11, 2014 \3\ and requesting comment 
on any exemption contained in the Exchange Act Exemptive Order and any 
additional relief that should be granted upon the expiration of the 
extension.
---------------------------------------------------------------------------

    \1\ See Order Granting Temporary Exemptions under the Securities 
Exchange Act of 1934 in Connection with the Pending Revisions of the 
Definition of ``Security'' to Encompass Security-Based Swaps, 
Exchange Act Release No. 64795 (Jul. 1, 2011), 76 FR 39927 (Jul. 7, 
2011).
    \2\ Id. See also Further Definition of ``Swap,'' ``Security-
Based Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps; 
Security-Based Swap Agreement Recordkeeping, Exchange Act Release 
No. 67453 (Jul. 18, 2012), 77 FR 48207 (Aug. 13, 2012) (Joint Final 
Rule with the CFTC) (``Product Definitions Adopting Release''), 
which postpones the Expiring Temporary Exemptions expiration date to 
February 11, 2013. The Financial Industry Regulatory Authority 
(``FINRA'') filed a proposed rule change, which was effective upon 
receipt by the Commission, extending the expiration date of FINRA 
Rule 0180 (Application of Rules to Security-Based Swaps), which 
temporary limits the application of certain FINRA rules with respect 
to security-based swaps, to July 17, 2013. See Self-Regulatory 
Organizations; Financial Industry Regulatory Authority, Inc.; Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change to 
Extend the Expiration Date of FINRA Rule 0180 (Application of Rules 
to Security-Based Swaps), Exchange Act Release No. 68471 (Dec. 19, 
2012).
    \3\ The Exchange Act Exemptive Order also provided a temporary 
exemption from Sections 5 and 6 of the Exchange Act until the 
earliest compliance date set forth in any of the final rules 
regarding registration of security-based swap execution facilities. 
The Exchange Act Exemptive Order also provided a temporary exemption 
that no security-based swap contract entered into on or after July 
16, 2011 shall be void or considered voidable by reason of Section 
29(b) of the Exchange Act because any person that is a party to the 
contract violated a provision of the Exchange Act for which the 
Commission has provided exemptive relief in the Exchange Act 
Exemptive Order, until such time as the underlying exemptive relief 
expires. This Order does not affect the timing of the expiration of 
either of these exemptions.
---------------------------------------------------------------------------

II. Discussion

    Title VII of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (``Dodd-Frank Act'') amended the Exchange Act definition 
of ``security'' to expressly encompass security-based swaps.\4\ The 
expansion of the definition of the term ``security'' results in the 
expansion of the scope of the regulatory provisions of the Exchange Act 
to security-based swaps. This expansion has raised certain complex 
questions that require further consideration by the staff.
---------------------------------------------------------------------------

    \4\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124, Stat. 1376 (2010); Exchange Act 
Section 3(a)(10), 15 U.S.C. 78c(a)(10), as revised by Section 
761(a)(2) of the Dodd-Frank Act.
    Title VII established a new regulatory framework for swaps and 
security-based swaps. Under the comprehensive framework established 
in Title VII, the Commission is given authority over security-based 
swaps, the CFTC is given regulatory authority over swaps, and the 
CFTC and SEC are provided with joint regulatory authority over mixed 
swaps. See Section 3(a)(68) of the Exchange Act, 15 U.S.C.78c(a)(68) 
(as added by Section 761(a)(6) of the Dodd-Frank Act) and Section 
1a(47) of the CEA, 7 U.S.C. 1a(47) (as added by Section 721(a) of 
the Dodd-Frank Act) for the definitions of security-based swap and 
swap, respectively. See also Product Definitions Adopting Release.
---------------------------------------------------------------------------

    On July 1, 2011, the Commission granted temporary relief from 
compliance with certain provisions of the Exchange Act by providing for 
the Expiring Temporary Exemptions.\5\ Specifically, the Expiring 
Temporary Exemptions, which are set to expire on the compliance date 
for final rules further defining the terms ``security-based swap'' and 
``eligible contract participant,'' provide for the following exemptions 
from Exchange Act: (a) Temporary exemptions in connection with 
security-based swap activity by certain ``eligible contract 
participants''; and (b) temporary exemptions specific to security-based 
swap activities by registered brokers and dealers.\6\ As previously 
noted, these Expiring Temporary Exemptions are currently scheduled to 
expire on February 11, 2013 for purposes of the Exchange Act Exemptive 
Order.\7\
---------------------------------------------------------------------------

    \5\ See Exchange Act Exemptive Order.
    \6\ See Exchange Act Exemptive Order at 39-44.
    \7\ See Product Definitions Adopting Release.
---------------------------------------------------------------------------

    The Commission recently received a request to extend the Expiring 
Temporary Exemptions until July 17, 2013, citing concerns that key 
issues and questions regarding the application of the federal 
securities laws to security-based swaps remain unresolved and that the 
expiration of these exemptions on February 11, 2013 would be 
premature.\8\ The request also noted concerns about the potential for 
unnecessary disruption to the security-based swap market.\9\
---------------------------------------------------------------------------

    \8\ See SIFMA Request for Extension of the Expiration Date of 
the SEC's Exchange Act Exemptive Order and SBS Interim final Rules 
(Dec. 20, 2012), which is available at http://www.sec.gov/comments/s7-27-11/s72711-12.pdf. The Commission has also received a request 
for certain permanent exemptions upon the expiration of the 
exemptions contained in the Exchange Act Exemptive Order. See SIFMA 
SBS Exemptive Relief Request (Dec. 5, 2011), which is available at 
http://www.sec.gov/comments/s7-27-11/s72711-10.pdf.
    \9\ See SIFMA Request for Extension of the Expiration Date of 
the SEC's Exchange Act Exemptive Order and SBS Interim final Rules 
(Dec. 20, 2012).
---------------------------------------------------------------------------

    To date, the Commission has proposed substantially all of the rules 
related to the new regulatory regime for derivatives under Title VII 
and has recently begun the process of adopting these rules.\10\ In 
furtherance of the Dodd-Frank Act's stated objective of promoting 
financial stability in the U.S. financial system, the Commission has 
expressed its intent to move forward deliberatively in implementing the 
requirements of the Dodd-Frank Act, while minimizing unnecessary 
disruption and costs to the markets.\11\
---------------------------------------------------------------------------

    \10\ See Statement of General Policy on the Sequencing of the 
Compliance Dates for Final Rules Applicable to Security-Based Swaps 
Adopted Pursuant to the Securities Exchange Act of 1934 and the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Exchange 
Act Release No. 67177 (Jun. 11, 2012). See also Product Definitions 
Adopting Release; Further Definition of ``Swap Dealer,'' ``Security-
Based Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-
Based Swap Participant'' and ``Eligible Contract Participant'', 
Exchange Act Release No. 66868 (Apr. 27, 2012), 77 FR 30596 (May 23, 
2012) (``Entity Definitions Adopting Release''); Process for 
Submissions for Review of Security-Based Swaps for Mandatory 
Clearing and Notice Filing Requirements for Clearing Agencies; 
Technical Amendments to Rule 19b-4 and Form 19b-4 Applicable to all 
Self-Regulatory Organizations, Exchange Act Release No. 67286 (Jun. 
28, 2012), 88 FR 41602 (Jul. 13, 2012); Clearing Agency Standards, 
Exchange Act Release No. 68080, (Oct. 22, 2012), 77 FR 66219 (Nov. 
2, 2012).
    \11\ See Exchange Act Exemptive Order.
---------------------------------------------------------------------------

    The Commission believes it is necessary or appropriate in the 
public interest and consistent with the protection of investors to 
extend the Expiring Temporary Exemptions until February 11, 2014 in 
order to both avoid a potential unnecessary disruption to the security-
based swap market that may result without an extension,\12\ and provide 
the Commission with additional time to consider the potential impact of 
the revision of the Exchange Act definition of ``security'' in light of 
recent Commission rulemaking efforts under Title VII of the Dodd-Frank 
Act. Extending the Expiring Temporary Exemptions also would facilitate 
a coordinated consideration of these issues with related relief 
provided by FINRA under its rulebook.\13\ While the comment letter 
recommended extending the temporary relief to July 17, 2013, we have 
determined to extend the relief to February 11, 2014. Accordingly, 
pursuant to the Commission's authority under Section 36 of the Exchange 
Act,\14\ the Commission is extending the expiration date for the 
Expiring Temporary Exemptions contained in the Exchange Act Exemptive 
Order until February 11, 2014.\15\
---------------------------------------------------------------------------

    \12\ See supra note 8 and 9.
    \13\ See supra note 2.
    \14\ 15 U.S.C. 78mm. Section 36 of the Exchange Act authorizes 
the Commission to conditionally or unconditionally exempt, by rule, 
regulation, or order any person, security or transaction (or any 
class or classes of persons, securities, or transactions) from any 
provision or provisions of the Exchange Act or any rule or 
regulation thereunder, to the extent such exemption is necessary or 
appropriate in the public interest, and is consistent with the 
protection of investors.
    \15\ The expiration date coincides with the Commission's recent 
amendment to the expiration dates in interim final rules that 
provide exemptions under the Securities Act of 1933, the Exchange 
Act, and the Trust Indenture Act of 1939 for those security-based 
swaps that prior to July 16, 2011 were security-based swap 
agreements and are defined as ``securities'' under the Securities 
Act and the Exchange Act as of July 16, 2011 due solely to the 
provisions of Title VII of the Dodd-Frank Act. See Extension of 
Exemptions for Security-Based Swaps, Release No. 33-9383 (Jan. 29, 
2013), 78 FR 7654 (Feb. 4, 2013).
---------------------------------------------------------------------------

III. Request for Comment

    The Commission believes that it would be useful to continue to 
provide interested parties opportunity to comment on any exemption 
contained in the Exchange Act Exemptive Order and any additional relief 
that should be granted upon the expiration of the extension for the 
Expiring Temporary Exemptions. Comments may be

[[Page 10220]]

submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/exorders.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number S7-27-11 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F St. NE., 
Washington, DC 20549-1090.

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

IV. Conclusion

    It is hereby ordered, pursuant to Section 36 of the Exchange Act, 
that, the Expiring Temporary Exemptions contained in the Exchange Act 
Exemptive Order in connection with the revision of the Exchange Act 
definition of ``security'' to encompass security-based swaps are 
extended until February 11, 2014.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-03214 Filed 2-12-13; 8:45 am]
BILLING CODE 8011-01-P