Document ID: SEC-2014-0248-0001
Agency: sec
Document Type: Rule
Title: Security Based Swaps; Exemptions
Posted Date: 2014-02-10T05:00Z

[Federal Register Volume 79, Number 27 (Monday, February 10, 2014)]
[Rules and Regulations]
[Pages 7570-7576]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02833]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230, 240 and 260

[Release Nos. 33-9545; 34-71482; 39-2495; File No. S7-26-11]
RIN 3235-AL17

Extension of Exemptions for Security-Based Swaps

AGENCY: Securities and Exchange Commission.

ACTION: Interim final rule; extension.

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SUMMARY: We are adopting amendments to the expiration dates in our 
interim final rules that provide exemptions under the Securities Act of 
1933, the Securities Exchange Act of 1934, 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 Wall Street Reform and 
Consumer Protection Act. Under the amendments, the expiration dates in 
the interim final rules will be extended to February 11, 2017. If we 
adopt further rules relating to issues raised by the application of the 
Securities Act or the other federal securities laws to security-based 
swaps before February 11, 2017, we may determine to alter the 
expiration dates in the interim final rules as part of that rulemaking.

DATES: The amendments are effective February 10, 2014. See Section I of 
the SUPPLEMENTARY INFORMATION concerning amendment of expiration dates 
in the interim final rules.

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 amendments to the following 
rules: interim final Rule 240 under the Securities Act of 1933 
(``Securities Act''),\1\ interim final Rules 12a-11 and 12h-1(i) under 
the Securities Exchange Act of 1934 (``Exchange Act''),\2\ and interim 
final Rule 4d-12 under the Trust Indenture Act of 1939 (``Trust 
Indenture Act'').\3\
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    \1\ 15 U.S.C. 77a et seq.
    \2\ 15 U.S.C. 78a et seq.
    \3\ 15 U.S.C. 77aaa et seq.
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I. Amendment of Expiration Dates in the Interim Final Rules

A. Background Regarding the Adoption of the Interim Final Rules

    In July 2011, we adopted interim final Rule 240 under the 
Securities Act, interim final Rules 12a-11 and 12h-1(i) under the 
Exchange Act, and interim final Rule 4d-12 under the Trust Indenture 
Act (collectively, the ``interim final rules'').\4\ The interim final 
rules provide exemptions under the Securities Act, the Exchange Act, 
and the Trust Indenture Act for those security-based swaps that prior 
to July 16, 2011 (``Title VII effective date'') were ``security-based 
swap agreements'' and are defined as ``securities'' under the 
Securities Act and the Exchange Act as of the Title VII effective date 
due solely to the provisions of Title VII of the Dodd-Frank Act.\5\ The 
interim final rules exempt offers and sales of security-based swap 
agreements that became security-based swaps on the Title VII effective 
date 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,\6\ provided certain conditions are met.\7\ In February 
2013, we adopted amendments to the interim final rules to extend the 
expiration dates in the interim final rules from February 11, 2013 to 
February 11, 2014.\8\
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    \4\ See 17 CFR 230.240, 17 CFR 240.12a-11, 17 CFR 240.12h-1, and 
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) 
(``Interim Final Rules Adopting Release'').
    \5\ The Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The provisions of 
Title VII generally were effective on July 16, 2011 (360 days after 
enactment of the Dodd-Frank Act), unless a provision requires a 
rulemaking. If a Title VII provision requires a rulemaking, it will 
go into effect ``not less than'' 60 days after publication of the 
related final rule or on July 16, 2011, whichever is later. See 
Section 774 of the Dodd-Frank Act.
    \6\ The category of security-based swaps covered by the interim 
final rules involves those that would have been defined as 
``security-based swap agreements'' prior to the enactment of Title 
VII. That definition of ``security-based swap agreement'' does 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 rules 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) (``Cleary 
Gottlieb No-Action Letter''). The Cleary Gottlieb No-Action Letter 
will remain in effect for so long as the interim final rules remain 
in effect.
    \7\ The security-based swap that is exempt must be a security-
based swap agreement (as defined prior to the Title VII effective 
date) and entered into between eligible contract participants (as 
defined prior to the Title VII effective date). See Rule 240 under 
the Securities Act [17 CFR 230.240]. See also Interim Final Rules 
Adopting Release.
    \8\ See Extension of Exemptions for Security-Based Swaps, 
Release No. 33-9383 (Jan. 29, 2013), 78 FR 7654 (Feb. 4, 2013).
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    Title VII amended the Securities Act and the Exchange Act to 
include ``security-based swaps'' in the definition of ``security'' for 
purposes of those statutes.\9\ As a result, ``security-based swaps'' 
became subject to the provisions of the Securities Act and the Exchange 
Act and the rules and regulations thereunder applicable to 
``securities.'' \10\

[[Page 7571]]

The interim final rules were intended to allow security-based swap 
agreements that became security-based swaps on the Title VII effective 
date to continue to trade as they did prior to the enactment of Title 
VII.\11\ We were concerned about disrupting the operation of the 
security-based swaps market until the compliance date for final rules 
that we may adopt further defining the terms ``security-based swap'' 
and ``eligible contract participant.'' \12\ We recognized that until we 
further defined such terms, market participants may be uncertain as to 
how to comply with the registration requirements of the Securities Act 
applicable to securities transactions, the registration requirements of 
the Exchange Act applicable to classes of securities, and the indenture 
provisions of the Trust Indenture Act.\13\
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    \9\ See 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).
    \10\ The Securities Act requires that any offer and sale of a 
security must be either registered under the Securities Act or made 
pursuant to an exemption from registration. See Section 5 of the 
Securities Act [15 U.S.C. 77e]. In addition, certain provisions of 
the Exchange Act relating to the registration of classes of 
securities and the indenture qualification provisions of the Trust 
Indenture Act of 1939 (``Trust Indenture Act'') [15 U.S.C. 77aaa et 
seq.] also potentially could apply to security-based swaps. The 
provisions of Section 12 of the Exchange Act could, without an 
exemption, require that security-based swaps be registered before a 
transaction could be effected on a national securities exchange. See 
Section 12(a) of the Exchange Act [15 U.S.C. 78l(a)]. In addition, 
registration of a class of security-based swaps under Section 12(g) 
of the Exchange Act could be required if the security-based swap is 
considered an equity security and held of record by either 2000 
persons or 500 persons who are not accredited investors at the end 
of a fiscal year. See Section 12(g)(1)(A) of the Exchange Act [15 
U.S.C. 78l(g)(1)(A)]. Further, without an exemption, the Trust 
Indenture Act could require qualification of an indenture for 
security-based swaps considered to be debt. See 15 U.S.C. 77aaa et 
seq.
    \11\ See Interim Final Rules Adopting Release.
    \12\ Id.
    \13\ Id. See also footnote 10 above.
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    We also needed additional time and market input to evaluate the 
implications under the Securities Act, the Exchange Act, and the Trust 
Indenture Act of including the term ``security-based swap'' in the 
definition of ``security.'' \14\ We understood from market participants 
that there were several types of trading platforms being used to effect 
transactions in security-based swaps, including security-based swap 
agreements that became security-based swaps on the Title VII effective 
date, that would likely register as security-based swap execution 
facilities (``security-based SEFs'') \15\ and that the use of trading 
platforms to effect security-based swap transactions would continue 
after the Title VII effective date.\16\ We also understood from market 
participants that if parties continued to engage in the same type of 
trading activities after the Title VII effective date that they were 
engaging in prior to the Title VII effective date with respect to 
security-based swap agreements that became security-based swaps on the 
Title VII effective date, such activities could raise concerns about 
the availability of exemptions from the registration requirements of 
the Securities Act and the Exchange Act.\17\ The interim final rules 
thus allow market participants to continue to use trading platforms to 
publish quotes for security-based swaps and enter into transactions 
involving security-based swaps that are the subject of individual 
negotiation without concern that such activities may not comply with 
the applicable provisions of the federal securities laws.\18\
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    \14\ Id. Prior to the Title VII effective date, security-based 
swap agreements that became security-based swaps on the Title VII 
effective date were outside the scope of the federal securities 
laws, other than the anti-fraud and certain other provisions. 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.
    \15\ A security-based swap execution facility is a trading 
system or platform in which multiple participants have the ability 
to execute or trade security-based swaps by accepting bids and 
offers made by multiple participants in the facility or system, 
through any means of interstate commerce, including any trading 
facility, that facilitates the execution of security-based swaps 
between persons and is not a national securities exchange. See 
Section 3(a)(77) of the Exchange Act [15 U.S.C. 78c(a)(77)]. See 
also Section 3D of the Exchange Act [15 U.S.C. 78c-4] and 
Registration and Regulation of Security-Based Swap Execution 
Facilities, Release No. 34-63825 (Feb. 2, 2011), 76 FR 10948 (Feb. 
28, 2011) (``Security-Based SEF Proposing Release'').
    \16\ See Interim Final Rules Adopting Release.
    \17\ Id. We received comments expressing concern regarding the 
implications of including security-based swaps in the definition of 
``security.'' Commenters indicated that they were still analyzing 
the full implications of such expansion of the definition of 
``security'' and that it would take time. Market participants 
requested temporary relief from certain provisions of the Securities 
Act and the Exchange Act so that parties could complete their 
analysis and submit requests for more targeted relief. Id.
    \18\ The interim final rules do not cover security-based swaps 
that are not subject to individual negotiation. The interim final 
rules apply only with respect to a security-based swap that would 
have been a security-based swap agreement under the definition of 
that term prior to the Title VII effective date. That definition 
incorporated the definition of ``swap agreement,'' which required 
that the agreement, contract or transaction be ``subject to 
individual negotiation.'' See Interim Final Rules Adopting Release.
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B. Comments Received on the Interim Final Rules

    At the time of adoption of the interim final rules in July 2011, we 
requested comment on various aspects of the interim final rules. In 
particular, we requested comment on the following: \19\ (i) Whether 
security-based swaps are transacted or expected to be transacted 
following the full implementation of Title VII in a manner that would 
not permit the parties to rely on existing exemptions under the 
Securities Act and the Exchange Act; and (ii) whether we should 
consider additional exemptions under the Securities Act and the 
Exchange Act for security-based swaps traded on a national securities 
exchange or through a security-based SEF with eligible contract 
participants.\20\
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    \19\ Id. We also requested comment on these matters in an 
earlier proposing release regarding exemptions for security-based 
swap transactions involving an eligible clearing agency. See 
Exemptions For Security-Based Swaps Issued By Certain Clearing 
Agencies, Release No. 33-9222 (Jun. 9, 2011), 76 FR 34920 (Jun. 15, 
2011) (``Cleared SBS Exemptions Proposing Release'').
    \20\ The term ``eligible contract participant'' is defined in 
Section 1a(18) of the Commodity Exchange Act [7 U.S.C. 1a(18)]. The 
definitions of the term ``eligible contract participant'' in the 
Securities Act and the Exchange Act both refer 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)] and Section 
3(a)(65) of the Exchange Act [15 U.S.C. 78c(a)(65)]. The eligible 
contract participant definition includes several categories of 
persons: Financial institutions; insurance companies; investment 
companies; commodity pools; business entities, such as corporations, 
partnerships, and trusts; employee benefit plans; government 
entities, such as the United States, a State or local municipality, 
a foreign government, a multinational or supranational government 
entity, or an instrumentality, agency or department of such 
entities; market professionals, such as broker dealers, futures 
commission merchants, floor brokers, and investment advisors; and 
natural persons with a specified dollar amount invested on a 
discretionary basis. The Commission and the Commodity Futures 
Trading Commission (``CFTC'') adopted final rules further defining 
the term ``eligible contract participant.'' The CFTC staff issued a 
letter, Staff Interpretations and No-Action Relief Regarding ECP 
Status: Swap Guarantee Arrangements; Jointly and Severally Liable 
Counterparties; Amounts Invested on a Discretionary Basis; and 
``Anticipatory ECPs,'' CFTC Letter No. 12-17 (Oct. 12, 2012). Such 
letter does not interpret or further define the term ``eligible 
contract participant'' for purposes of Section 712(d) of the Dodd-
Frank Act or the federal securities laws. 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'').
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    We received letters from three commenters regarding the interim 
final rules.\21\ One commenter opposed any exemptions for security-
based swaps, including the exemptions provided in the interim final 
rules, but did not provide any explanation for the reason.\22\ The two 
other commenters supported the interim final rules.\23\ These 
commenters stated their view that the interim final rules were 
necessary and appropriate steps to prevent disruption of the security-
based swaps market and to ensure the orderly implementation of Title 
VII.\24\ These commenters provided a description of the security-based 
swaps market as it currently functions and how it may

[[Page 7572]]

function following the full implementation of Title VII.\25\ These 
commenters expressed concerns about the availability of exemptions from 
the registration requirements of the Securities Act for security-based 
swap transactions entered into solely between eligible contract 
participants due to the operation of security-based swap trading 
platforms and the publication or distribution of other information 
regarding security-based swaps.\26\ They indicated that certain 
communications involving security-based swaps, such as the publication 
or distribution of price quotes, may be available on or through trading 
platforms on an unrestricted basis, including following the full 
implementation of Title VII.\27\ They also indicated that security-
based swap dealers publish and distribute communications they 
characterized as research regarding security-based swap transactions 
that may be broadly disseminated and could be available on an 
unrestricted basis.\28\ They were concerned that unrestricted access to 
these communications could affect the availability of exemptions from 
the registration requirements of the Securities Act, such as the 
exemption in Section 4(a)(2), for security-based swap transactions 
entered into solely between eligible contract participants.\29\ Based 
on their concerns regarding the availability of exemptions from the 
registration requirements of the Securities Act, these commenters 
requested that we adopt permanent relief from the registration 
requirements of Section 5 of the Securities Act for offers and sales of 
security-based swaps \30\ solely between eligible contract 
participants.\31\ These commenters also requested relief under the 
Exchange Act for offers and sales of security-based swaps solely 
between eligible contract participants.\32\ They were concerned that 
ambiguity regarding the definition of a ``class'' as applied to 
security-based swaps could raise concerns about the registration 
requirements of Section 12(g) of the Exchange Act.\33\ Finally, these 
commenters requested relief from Section 304(d) of the Trust Indenture 
Act for security-based swaps entered into solely between eligible 
contract participants.\34\ They believed that the protections of the 
Trust Indenture Act are not necessary for these transactions because 
they involve contracts between two counterparties who are capable of 
enforcing obligations under the security-based swaps directly.\35\
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    \21\ See letter from Kenneth E. Bentsen, Jr., Executive Vice 
President, Public Policy and Advocacy, The Securities Industry and 
Financial Markets Association (``SIFMA''), dated December 21, 2012 
(``SIFMA Letter''); letter from Kenneth E. Bentsen, Jr., Executive 
Vice President, Public Policy and Advocacy, SIFMA, and Robert 
Pickel, Chief Executive Officer, International Swaps and Derivatives 
Association (``ISDA''), dated Apr. 20, 2012 (``SIFMA/ISDA Letter''); 
and letter from Tom Nappi, dated Jul. 14, 2011 (``Nappi Letter'').
    \22\ See Nappi Letter.
    \23\ See SIFMA Letter and SIFMA/ISDA Letter.
    \24\ See SIFMA/ISDA Letter.
    \25\ Id.
    \26\ See SIFMA Letter and SIFMA/ISDA Letter.
    \27\ See SIFMA/ISDA Letter.
    \28\ See SIFMA Letter.
    \29\ See SIFMA Letter and SIFMA/ISDA Letter.
    \30\ The category of security-based swaps that would be covered 
by this request for relief is broader in some ways than the category 
of security-based swaps covered by the exemptions provided in the 
interim final rules. As noted in footnote 6 above, the exemptions 
provided in the interim final rules apply to security-based swaps 
that were defined as ``security-based swap agreements'' prior to the 
Title VII effective date. That definition of ``security-based swap 
agreement'' does not include security-based swaps that are based on 
or reference only loans and indexes only of loans.
    \31\ See SIFMA Letter and SIFMA/ISDA Letter. These commenters 
limited their request for relief to security-based swap transactions 
not involving an eligible clearing agency. Id. We adopted exemptions 
under the Securities Act, the Exchange Act, and the Trust Indenture 
Act for security-based swap transactions involving an eligible 
clearing agency. 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 of 1939 [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) (``Cleared 
SBS Exemptions Adopting Release''). 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.
    \32\ See SIFMA/ISDA Letter.
    \33\ Id.
    \34\ Id.
    \35\ Id.
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    Moreover, although not submitted in connection with the interim 
final rules, we received two comment letters from four commenters 
regarding the exemptions for security-based swap transactions involving 
an eligible clearing agency.\36\ These letters discussed issues arising 
with respect to security-based swap transactions not involving an 
eligible clearing agency and requested exemptions under the Securities 
Act, the Exchange Act, and the Trust Indenture Act for security-based 
swap transactions entered into between eligible contract 
participants.\37\ In adopting the exemptions for security-based swap 
transactions involving an eligible clearing agency, we indicated that 
these commenters' suggestions were more appropriate to be considered in 
connection with the interim final rules.\38\
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    \36\ See letter from Richard M. Whiting, Executive Director and 
General Counsel, Financial Services Roundtable, Robert Pickel, Chief 
Executive Officer, ISDA, and Kenneth E. Bentsen, Jr., Executive Vice 
President, Public Policy and Advocacy, SIFMA, dated Jan. 31, 2012 
(``FSR/ISDA/SIFMA Letter''); and letter from Scott Pintoff, General 
Counsel, GFI Group Inc., dated Jul. 25, 2011 (``GFI Letter''). These 
letters were submitted in response to our request for comment in the 
Cleared SBS Exemptions Proposing Release. See footnote 19 above.
    \37\ See GFI Letter and FSR/ISDA/SIFMA Letter. The GFI Letter 
suggested that we provide permanent exemptions under the Securities 
Act, the Exchange Act, and the Trust Indenture Act for security-
based swap transactions entered into between eligible contract 
participants and effected through any trading platform similar to 
the proposed exemptions for security-based swap transactions 
involving an eligible clearing agency. This commenter did not 
provide any explanation as to why such exemptions were needed, 
including how security-based swap trading platforms operate, that 
would enable us to evaluate whether relief is necessary or 
appropriate. See Cleared SBS Exemptions Adopting Release. The FSR/
ISDA/SIFMA Letter requested relief under the Exchange Act and the 
Trust Indenture Act, but did not request relief under the Securities 
Act. However, two of these commenters subsequently submitted the 
SIFMA Letter and the SIFMA/ISDA Letter to request relief under the 
Securities Act. See footnote 31 above and accompanying text.
    \38\ See Cleared SBS Exemptions Adopting Release.
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    We subsequently extended the expiration dates in the interim final 
rules from February 11, 2013 to February 11, 2014 to enable us to 
continue our evaluation of the implications for security-based swaps as 
securities and determine whether other regulatory action is appropriate 
before the expiration date of the interim final rules.\39\ We indicated 
at that time that we were carefully considering the comments we had 
received on the interim final rules as part of our evaluation of the 
implications for security-based swaps resulting from the inclusion of 
the term ``security-based swap'' in the definition of ``security'' 
under the Securities Act and the Exchange Act.\40\ We also indicated 
that we were in the process of implementing the Title VII statutory 
provisions governing the registration and regulation of security-based 
SEFs.\41\ We had proposed rules to implement these provisions, but the 
particular characteristics of trading platforms that security-based 
SEFs will be permitted to operate would not be known until we adopted 
final rules for security-based SEFs. We indicated that we were 
evaluating the comments we had received on these proposed rules, but 
that we had not yet adopted final rules implementing the Title VII 
statutory provisions governing the registration and regulation of 
security-based SEFs.\42\ Moreover, we indicated that we were evaluating 
such comments in connection with our consideration of the comments we 
have received on the interim final rules given commenters' concerns 
regarding the operation of security-based swap trading platforms.\43\
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    \39\ See footnote 8 above. We had received a request from a 
commenter to extend the expiration dates in the interim final rules. 
See letter from Kenneth E. Bentsen, Jr., Executive Vice President, 
Public Policy and Advocacy, SIFMA, dated December 20, 2012.
    \40\ Id.
    \41\ Id.
    \42\ Id.
    \43\ Id.
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C. Extension of the Interim Final Rules

    In this release, we are extending the expiration dates in the 
interim final

[[Page 7573]]

rules from February 11, 2014 to February 11, 2017. We are still in the 
process of implementing Title VII, which imposes a comprehensive regime 
for the regulation of security-based swaps under the federal securities 
laws, including the clearing, exchange trading, and reporting of 
security-based swap transactions. We have adopted some rules under 
Title VII, including joint rules with the CFTC further defining certain 
Title VII definitions,\44\ rules establishing the procedure by which 
clearing agencies submit security-based swaps for determination as to 
whether those instruments should be subject to mandatory clearing under 
Title VII,\45\ and rules establishing standards for how registered 
clearing agencies should manage their risks and run their 
operations.\46\ We also have issued a policy statement proposing the 
sequencing of compliance dates for final rules that we may adopt to 
complete the implementation of the security-based swaps regulatory 
regime (``sequencing policy statement'').\47\ While we are working 
toward fulfilling the requirements of Title VII in a thorough and 
deliberative manner that includes significant public input and 
coordination with other regulators, we have not yet adopted final rules 
completing the implementation of the security-based swaps regulatory 
regime.
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    \44\ See 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).
    \45\ See 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, Release No. 34-
67286 (Jun. 28, 2012), 77 FR 41602 (Jul. 13, 2012).
    \46\ See Clearing Agency Standards, Release No. 34-68080 (Oct. 
22, 2012), 77 FR 66219 (Nov. 2, 2012).
    \47\ 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, Release 
No. 34-67177 (Jun. 11, 2012), 77 FR 35625 (Jun. 14, 2012).
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    Subsequent to the extension of the expiration dates in the interim 
final rules in February 2013, we completed proposing nearly all of the 
rules required to be adopted by Title VII to implement the security-
based swaps regulatory regime.\48\ Most recently, we proposed rules and 
interpretations addressing the application of the security-based swap 
provisions of Title VII to cross-border security-based swap 
transactions and to non-U.S. persons that act in capacities regulated 
under the Dodd-Frank Act.\49\ In light of the substantially complete 
picture of the proposed security-based swaps regulatory regime, as well 
as the fact that the CFTC has adopted nearly all of its rules required 
by Title VII to implement the swaps regulatory regime,\50\ we reopened 
the comment period for the proposals implementing the security-based 
swaps regulatory regime and the sequencing policy statement to provide 
the public with an additional opportunity to analyze and comment upon 
the proposed security-based swaps regulatory regime.\51\
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    \48\ We have not yet proposed rules regarding the reporting and 
recordkeeping requirements to which security-based swap dealers and 
major security-based swap participants will be subject pursuant to 
Section 15F(f) of the Exchange Act. 15 U.S.C. 78o-10(f).
    \49\ See Cross-Border Application of Title VII of the Dodd-Frank 
Wall Street Reform and Consumer Protection Act; Re-Proposal of 
Regulation SBSR and Certain Rules and Forms Relating to the 
Registration of Security-Based Swap Dealers and Major Security-Based 
Swap Participants, Release No. 34-69490 (May 1, 2013), 78 FR 30967 
(May 23, 2013).
    \50\ CFTC Chairman Gary Gensler has noted that the CFTC has 
``largely completed the swaps market rulemaking, with 80 percent 
behind us. . . .'' Gary Gensler, Chairman, CFTC, Opening Remarks at 
CFTC Public Roundtable on ``Futurization of Swaps'' (Jan. 31, 2013) 
(transcript available at http://www.cftc.gov/PressRoom/SpeechesTestimony/opagensler-130).
    \51\ See Reopening of Comment Periods for Certain Rulemaking 
Releases and Policy Statement Applicable to Security-Based Swaps 
Proposed Pursuant to the Securities Exchange Act of 1934 and the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Release 
No. 34-69491 (May 1, 2013), 78 FR 30800 (May 23, 2013).
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    As we consider final rules completing implementation of the 
security-based swaps regulatory regime, we are evaluating the 
additional comments we received after reopening the comment period. We 
also are considering the CFTC's experiences with implementation of the 
swaps regulatory regime and the extent to which our final rules should 
harmonize with the CFTC's final rules implementing the swaps regulatory 
regime. However, we do not expect to complete such evaluation and adopt 
final rules before February 11, 2014, the current expiration date of 
the interim final rules. We do not believe that we can complete our 
evaluation of the implications for security-based swaps and determine 
whether other regulatory action is appropriate until we progress 
further in our consideration of final rules completing the 
implementation of the security-based swaps regulatory regime.
    For example, we are considering final rules implementing the Title 
VII statutory provisions governing the registration and regulation of 
security-based SEFs. We have proposed rules to implement these 
provisions, but the particular characteristics of trading platforms 
that security-based SEFs will be permitted to operate will not be known 
until we adopt final rules for security-based SEFs. As discussed above, 
we received comments on the interim final rules that expressed concerns 
regarding the implications for security-based swaps under the 
Securities Act as a result of the possible operation of security-based 
SEFs.\52\ We believe that our determination about possible regulatory 
action for security-based swaps is directly affected by our 
consideration of final rules completing the implementation of the Title 
VII statutory provisions governing the registration and regulation of 
security-based SEFs.\53\
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    \52\ See footnote 16 above and accompanying text.
    \53\ Moreover, under the swaps regulatory regime as implemented, 
we are considering issues that may arise under the federal 
securities laws from the possible trading of security-based swaps on 
swap execution facilities.
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    If the interim final rules expire before we complete our evaluation 
of the implications for security-based swaps as securities and 
determine whether other regulatory action is appropriate, market 
participants entering into security-based swap transactions will have 
to consider whether they need to register the offer and sale of the 
security-based swaps under the Securities Act. Market participants also 
will have to consider whether they may be required to comply with the 
registration provisions of the Exchange Act applicable to classes of 
securities and the indenture provisions of the Trust Indenture Act. We 
believe that requiring compliance with these provisions while we 
evaluate the implications for security-based swaps as securities and 
determine whether other regulatory action is appropriate could have an 
impact on the operation of the security-based swaps market. Thus, the 
interim final rules are needed to allow market participants that meet 
the conditions of the interim final rules to continue to enter into 
security-based swap transactions without concern that such activities 
may not comply with the applicable provisions of the Securities Act, 
the Exchange Act, and the Trust Indenture Act.
    Based on the foregoing, we believe that it is necessary and 
appropriate in the public interest and consistent with the protection 
of investors to continue providing the exemptions from all provisions 
of the Securities Act (other than the Section 17(a) antifraud 
provisions), the registration requirements of the Exchange Act relating 
to classes of securities, and the indenture provisions of the Trust 
Indenture Act for those security-based

[[Page 7574]]

swaps that prior to the Title VII effective date were security-based 
swap agreements, provided certain conditions are met. Accordingly, due 
to the interrelationship between the interim final rules and the 
ongoing implementation of the security-based swaps regulatory regime, 
and based on our consideration of comments we have received to date on 
these matters, we have determined that it is necessary and appropriate 
to extend the expiration dates in the interim final rules from February 
11, 2014 to February 11, 2017.\54\ If we adopt further rules relating 
to issues raised by the application of the Securities Act or the other 
federal securities laws to security-based swaps before February 11, 
2017, we may determine to alter the expiration dates in the interim 
final rules as part of that rulemaking. We only are extending the 
expiration dates in the interim final rules; we are not making any 
other changes to the interim final rules.
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    \54\ In conjunction with the extension of the expiration dates 
in the interim final rules, we also are extending certain of the 
temporary relief we adopted in July 2011 that provided exemptions 
from compliance with certain provisions of the Exchange Act. This 
relief also is set to expire on February 11, 2014 and exempts 
security-based swap activities from the application of the Exchange 
Act other than certain antifraud and anti-manipulation provisions, 
all Exchange Act provisions related to security-based swaps added or 
amended by Title VII of the Dodd-Frank Act, including the amended 
definition of ``security'' in Section 3(a)(10), and certain other 
Exchange Act provisions. See 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, Release No. 34-71485 (Feb. 5, 2014). See also 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, Release No. 34-64795 
(Jul. 1, 2011), 76 FR 39927 (Jul. 7, 2011).
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II. Certain Administrative Law Matters

    Section 553(b) of the Administrative Procedure Act \55\ generally 
requires an agency to publish notice of a proposed rulemaking in the 
Federal Register. This requirement does not apply, however, if the 
agency ``for good cause finds (and incorporates the finding and a brief 
statement of reasons therefore in the rules issued) that notice and 
public procedure thereon are impracticable, unnecessary, or contrary to 
the public interest.'' \56\ Further, the Administrative Procedure Act 
also generally requires that an agency publish an adopted rule in the 
Federal Register 30 days before it becomes effective.\57\ This 
requirement does not apply, however, if the agency finds good cause for 
making the rule effective sooner.\58\ We, for good cause, find that 
notice and solicitation of comment before adopting the amendments to 
the interim final rules is impracticable, unnecessary, or contrary to 
the public interest. We also find good cause not to delay the effective 
date of the amendments to the interim final rules.
---------------------------------------------------------------------------

    \55\ 5 U.S.C. 553(b).
    \56\ Id.
    \57\ See 5 U.S.C. 553(d).
    \58\ Id.
---------------------------------------------------------------------------

    For the reasons we discuss throughout this release, we believe that 
we have good cause to act immediately to adopt the amendments to the 
interim final rules to extend the expiration dates in the interim final 
rules. The extension of the expiration dates in the interim final rules 
is intended to minimize disruptions and costs to the security-based 
swaps market that could occur if the interim final rules expire. The 
interim final rules are needed to allow market participants that meet 
the conditions of the interim final rules to continue to enter into 
security-based swap transactions without concern that such activities 
will be subject to the registration requirements of the Securities Act 
and the Exchange Act and the indenture qualification provisions of the 
Trust Indenture Act while we complete our evaluation of the 
implications for security-based swaps and determine whether other 
regulatory action is appropriate.
    As noted above, we currently are considering final rules completing 
the implementation of the security-based swaps regulatory regime. As 
part of such consideration, we are evaluating the additional comments 
we received after reopening the comment period for the proposals 
implementing the security-based swaps regulatory regime and the 
sequencing policy statement and the CFTC's experiences with 
implementation of the swaps regulatory regime. However, we do not 
expect to complete such evaluation and adopt final rules before 
February 11, 2014, the current expiration date of the interim final 
rules. We do not believe that we can complete our evaluation of the 
implications for security-based swaps and determine whether other 
regulatory action is appropriate until we progress further in our 
consideration of final rules completing the implementation of the 
security-based swaps regulatory regime. We believe that our 
determination regarding possible regulatory action for security-based 
swaps is directly affected by our consideration of final rules 
completing the implementation security-based swaps regulatory regime. 
Moreover, under the swaps regulatory regime as implemented, we are 
considering issues that may arise under the federal securities laws 
from the possible trading of security-based swaps on swap execution 
facilities.
    Absent an extension, the interim final rules will expire on 
February 11, 2014. The interim final rules have been in place since 
July 2011 and market participants have relied on them to enter into 
security-based swap transactions. Extending the expiration dates in the 
interim final rules will not affect the substantive provisions of the 
interim final rules and will allow market participants that meet the 
conditions of the interim final rules to continue to enter into 
security-based swap transactions without concern that such activities 
will be subject to the registration requirements of the Securities Act 
and the Exchange Act and the indenture qualification provisions of the 
Trust Indenture Act while we complete our evaluation of the 
implications for security-based swaps as securities and determine 
whether other regulatory action is appropriate. Based on the foregoing 
and for the reasons we discuss throughout this release, we find that 
there is good cause to have the amendments to the interim final rules 
effective upon publication in the Federal Register and that notice and 
solicitation of comment in advance of the effectiveness of the 
amendments to the interim final rules is impracticable, unnecessary or 
contrary to the public interest.\59\
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    \59\ This finding also satisfies the requirements of 5 U.S.C. 
808(2), allowing the rule amendment to become effective 
notwithstanding the requirement of 5 U.S.C. 801 (if a federal agency 
finds that notice and public comment are ``impractical, unnecessary 
or contrary to the public interest,'' a rule ``shall take effect at 
such time as the federal agency promulgating the rule determines'').
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III. Economic Analysis

    We are mindful of the costs imposed by, and the benefits to be 
obtained from, our rules. Section 2(b) of the Securities Act and 
Section 3(f) of the Exchange Act require the Commission, whenever it 
engages in rulemaking and is required to consider or determine whether 
an action is necessary or appropriate in the public interest, to 
consider, in addition to the protection of investors, whether the 
action would promote efficiency, competition, and capital 
formation.\60\ In addition, Section 23(a)(2) of the Exchange Act 
requires the Commission, when making rules under the Exchange Act, to 
consider the impact such rules would have on competition.\61\ Section 
23(a)(2) of the Exchange Act prohibits the Commission from adopting any 
rule

[[Page 7575]]

that would impose a burden on competition not necessary or appropriate 
in furtherance of the purposes of the Exchange Act.\62\
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    \60\ See 15 U.S.C. 77b(b) and 15 U.S.C. 78c(f).
    \61\ See 15 U.S.C. 78w(a)(2).
    \62\ Id.
---------------------------------------------------------------------------

    As discussed above, we are adopting amendments to the interim final 
rules to extend the expiration dates in the interim final rules to 
February 11, 2017. Extending the expiration dates in the interim final 
rules is intended to minimize disruptions and costs to the security-
based swaps market that could occur on the current expiration date of 
the interim final rules. The interim final rules are needed to allow 
market participants that meet the conditions of the interim final rules 
to continue to enter into security-based swap transactions without 
concern that such activities will be subject to the registration 
requirements of the Securities Act and the Exchange Act and the 
indenture qualification provisions of the Trust Indenture Act.
    The interim final rules currently in effect serve as the economic 
baseline against which the costs and benefits, as well as the impact on 
efficiency, competition, and capital formation, of the amendments are 
measured. Because the extension of the expiration dates in the interim 
final rules maintains the status quo, we do not expect additional 
significant costs or benefits to result from the extension. We also do 
not expect the extension to have additional significant effects on 
efficiency, competition, or capital formation. The interim final rules 
will continue to exempt certain security-based swaps from all 
provisions of the Securities Act, other than the Section 17(a) 
antifraud provisions,\63\ as well as exempt these security-based swaps 
from Exchange Act registration requirements, and from the provisions of 
the Trust Indenture Act, provided certain conditions are met.
---------------------------------------------------------------------------

    \63\ See 15 U.S.C. 77q(a).
---------------------------------------------------------------------------

    In the alternative, we could allow the interim final rules to 
expire by not extending their expiration date. In this scenario, market 
participants who continue to effect security-based swap transactions 
would have to determine whether another exemption from the registration 
requirements of the Securities Act is available so that they may be 
able to rely on that exemption. If no Securities Act exemptions are 
available for a security-based swap transaction following the 
expiration of the interim final exemptions, such a transaction would 
have to be registered under the Securities Act. The counterparties to 
such a transaction also would have to consider whether they need to 
comply with the registration requirements of the Exchange Act and the 
indenture provisions of the Trust Indenture Act. We believe that 
requiring compliance with these provisions at this time for security-
based swap transactions between eligible contract participants likely 
would disrupt and impose new costs on this segment of the security-
based swaps market. For example, if market participants are required to 
register the offer and sale of these security-based swaps under the 
Securities Act, they would have to incur the additional costs of such 
registration, including legal and accounting costs, as well as the 
costs associated with preparing the disclosure documents describing 
these security-based swaps. Market participants also may incur costs 
associated with the registration of these security-based swaps under 
the Exchange Act and compliance with the Trust Indenture Act, including 
preparing indentures and arranging for the services of a trustee.
    It is also possible that if we were to allow the interim final 
rules to expire, efficiency and capital formation may be impaired. 
Failing to extend the expiration dates in the interim final rules may 
result in disruptions and costs to the security-based swaps market that 
could impede efficiency. Additionally, some market participants may not 
continue to participate in certain security-based swap transactions if 
compliance with these provisions were infeasible (economically or 
otherwise). In that case, capital formation may be impaired to the 
extent that some market participants use these security-based swap 
transactions to hedge risks, including those related to the issuance of 
the referenced securities (as may occur with equity swaps and the 
issuance of convertible bonds). For example, if registration of these 
transactions is required under our existing Securities Act registration 
scheme, issuers of security-based swaps may be forced to provide 
disclosure about their security-based swap positions that might not 
otherwise be disclosed to the market. This position disclosure could 
lead to a decreased use of security-based swaps by these market 
participants, which could potentially impair capital formation to the 
extent counterparties might use security-based swaps for hedging their 
exposure to issuers of referenced securities.
    We also recognize that there would be other effects associated with 
letting the interim final rules expire. Without the exemptions provided 
for in the interim final rules, a market participant may have to file a 
registration statement covering the offer and sale of the security-
based swaps, may have to register the class of security-based swaps 
that it has issued under the Exchange Act, and may have to satisfy the 
applicable provisions of the Trust Indenture Act, which would provide 
investors with additional information and in certain cases civil 
remedies. For example, a registration statement covering the offer and 
sale of the security-based swaps may 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 swap. Additionally, although 
investors currently may pursue antifraud actions in connection with the 
purchase and sale of security-based swaps under Section 10(b) of the 
Exchange Act,\64\ if market participants were required to file 
registration statements under the Securities Act, investors may also be 
able to pursue civil remedies under Sections 11 or 12 of the Securities 
Act.\65\
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    \64\ See 15 U.S.C. 78j(b).
    \65\ See 15 U.S.C. 77k-l. Regardless of the extension, however, 
we can always pursue an antifraud action in the offer and sale of 
security-based swaps under Section 17(a) of the Securities Act. See 
15 U.S.C. 77q.
---------------------------------------------------------------------------

IV. Paperwork Reduction Act

    The interim final rules do not impose any new ``collections of 
information'' within the meaning of the Paperwork Reduction Act of 1995 
(``PRA''),\66\ nor do they create any new filing, reporting, 
recordkeeping, or disclosure reporting requirements. Accordingly, we 
did not submit the interim final rules to the Office of Management and 
Budget for review in accordance with the PRA.\67\ We requested comment 
on whether our conclusion that there are no collections of information 
is correct, and we did not receive any comment.
---------------------------------------------------------------------------

    \66\ 44 U.S.C. 3501 et seq.
    \67\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

V. Regulatory Flexibility Act Certification

    We hereby certify pursuant to 5 U.S.C. 605(b) that extending the 
expiration dates in the interim final rules will not have a significant 
economic impact on a substantial number of small entities.\68\ The 
interim final rules apply only to counterparties that may engage in 
security-based swap transactions in reliance on the interim final rule 
providing an exemption under the Securities Act. The interim final rule

[[Page 7576]]

under the Securities Act provides that the exemption is available only 
to security-based swaps that are entered into between eligible contract 
participants, as that term is defined in Section 1a(12) of the 
Commodity Exchange Act as in effect prior to the Title VII effective 
date, and other than with respect to persons determined by the CFTC to 
be eligible contract participants pursuant to Section 1a(12)(C) of the 
Commodity Exchange Act. Based on our existing information about the 
security-based swaps market, including our existing information about 
participants in the security-based swaps market, we believe that the 
interim final rules apply to few, if any, small entities.\69\ For this 
reason, the extension of the expiration dates in the interim final 
rules should not have a significant economic impact on a substantial 
number of small entities.
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    \68\ We certified pursuant to 5 U.S.C. 605(b) that the interim 
final rules will not have a significant economic impact on a 
substantial number of small entities. See Interim Final Rules 
Adopting Release. We received no comments on that certification.
    \69\ For example, as revealed in a current survey conducted by 
Office of the Comptroller of the Currency, 100.0% of credit default 
swap positions held by U.S. commercial banks and trust companies are 
held by those with assets over $10 billion. See Office of the 
Comptroller of the Currency, ``Quarterly Report on Bank Trading and 
Derivatives Activities Third Quarter 2013'' (2013).
---------------------------------------------------------------------------

VI. Statutory Authority and Text of the Rules and Amendments

    The amendments described in this release are being adopted under 
the authority set forth in Sections 19 and 28 of the Securities Act, 
Sections 12(h), 23(a) and 36 of the Exchange Act, and Section 304(d) of 
the Trust Indenture Act.

List of Subjects in 17 CFR Parts 230, 240 and 260

    Reporting and recordkeeping requirements, Securities.

Text of the Rules and Amendments

    For the reasons set out in the preamble, the Commission amends 17 
CFR parts 230, 240, and 260 as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The authority citation for part 230 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77b, 77b note, 77c, 77d, 77d note, 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), 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *

Sec.  230.240  [Amended]

0
2. In Sec.  230.240(c), in the first sentence, remove the words 
``February 11, 2014'' and add, in their place, the words ``February 11, 
2017''.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
3. The authority citation for part 240 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78p, 78q, 
78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 
80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq.; 18 U.S.C. 1350; and 
12 U.S.C. 5221(e)(3), unless otherwise noted.
* * * * *

Sec.  240.12a-11  [Amended]

0
4. In Sec.  240.12a-11(b), in the first sentence, remove the words 
``February 11, 2014'' and add, in their place, the words ``February 11, 
2017''.

Sec.  240.12h-1  [Amended]

0
5. In Sec.  240.12h-1(i), in the second sentence, remove the words 
``February 11, 2014'' and add, in their place, the words ``February 11, 
2017''.

PART 260--GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF 
1939

0
6. The authority citation for part 260 continues to read as follows:

    Authority:  15 U.S.C. 77eee, 77ggg, 77nnn, 77sss, 78ll(d), 80b-
3, 80b-4, and 80b-11.

Sec.  260.4d-12  [Amended]

0
7. In Sec.  260.4d-12, in the second sentence, remove the words 
``February 11, 2014'' and add, in their place, the words ``February 11, 
2017''.

     Dated: February 5, 2014.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2014-02833 Filed 2-7-14; 8:45 am]
BILLING CODE 8011-01-P