Document ID: SEC-2020-0933-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2020-06-16T04:00Z

[Federal Register Volume 85, Number 116 (Tuesday, June 16, 2020)]
[Notices]
[Pages 36458-36460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12892]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89036; File No. SR-FINRA-2020-016]

Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Extend the Implementation of FINRA Rule 4240 
(Margin Requirements for Credit Default Swaps)

June 10, 2020.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 2, 2020, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by FINRA. FINRA has designated 
the proposed rule change as constituting a ``non-controversial'' rule 
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which 
renders the proposal effective upon receipt of this filing by the 
Commission. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to extend to September 1, 2021 the 
implementation of FINRA Rule 4240. FINRA Rule 4240 implements an 
interim pilot program with respect to margin requirements for certain 
transactions in credit default swaps that are security-based swaps.
    The text of the proposed rule change is available on FINRA's 
website at

[[Page 36459]]

http://www.finra.org, at the principal office of FINRA and at the 
Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, FINRA included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. FINRA has prepared summaries, set forth in sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    On May 22, 2009, the Commission approved FINRA Rule 4240,\4\ which 
implements an interim pilot program (the ``Interim Pilot Program'') 
with respect to margin requirements for certain transactions in credit 
default swaps (``CDS'').\5\ On May 21, 2019, FINRA filed a proposed 
rule change for immediate effectiveness extending the implementation of 
FINRA Rule 4240 to July 20, 2020.\6\
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    \4\ See Securities Exchange Act Release No. 59955 (May 22, 
2009), 74 FR 25586 (May 28, 2009) (Order Approving File No. SR-
FINRA-2009-012) (``Approval Order'').
    \5\ In March 2012, the SEC approved amendments to FINRA Rule 
4240 that, among other things, limit at this time the rule's 
application to credit default swaps that are security-based swaps. 
See Securities Exchange Act Release No. 66527 (March 7, 2012), 77 FR 
14850 (March 13, 2012) (Order Approving File No. SR-FINRA-2012-015).
    \6\ See Securities Exchange Act Release No. 85981 (May 31, 
2019), 84 FR 26486 (June 6, 2019) (Notice of Filing and Immediate 
Effectiveness of File No. SR-FINRA-2019-016).
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    As explained in the Approval Order, FINRA Rule 4240, coterminous 
with certain Commission actions, was intended to address concerns 
arising from systemic risk posed by CDS, including, among other things, 
risks to the financial system arising from the lack of a central 
clearing counterparty to clear and settle CDS.\7\ On July 21, 2010, the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-
Frank Act'') was signed into law.\8\ Title VII of the Dodd-Frank Act 
established a comprehensive new regulatory framework for swaps and 
security-based swaps,\9\ including certain CDS. The legislation was 
intended, among other things, to enhance the authority of regulators to 
implement new rules designed to reduce risk, increase transparency, and 
promote market integrity with respect to such products.
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    \7\ See Approval Order, 74 FR at 25588-89.
    \8\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010).
    \9\ The terms ``swap'' and ``security-based swap'' are defined 
in Sections 721 and 761 of the Dodd-Frank Act. The Commodity Futures 
Trading Commission (``CFTC'') and the Commission jointly have 
approved rules to further define these terms. See Securities 
Exchange Act Release No. 67453 (July 18, 2012), 77 FR 48208 (August 
13, 2012) (Joint Final Rule; Interpretations; Request for Comment on 
an Interpretation: Further Definition of ``Swap,'' ``Security-Based 
Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps; 
Security-Based Swap Agreement Recordkeeping). See also Securities 
Exchange Act Release No. 66868 (April 27, 2012), 77 FR 30596 (May 
23, 2012) (Joint Final Rule; Joint Interim Final Rule; 
Interpretations: Further Definition of ``Swap Dealer,'' ``Security-
Based Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-
Based Swap Participant'' and ``Eligible Contract Participant'').
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    The Commission has finalized a majority of its rulemakings pursuant 
to Title VII of the Dodd-Frank Act (the ``Title VII rulemakings'').\10\ 
Further, the Commission has specified an extended compliance period for 
these new rules and guidance so as to permit sufficient time to prepare 
for and come into compliance with the new requirements.\11\ In tandem 
with the Commission's action, FINRA extended, to September 1, 2021, the 
expiration date of FINRA Rule 0180 (Application of Rules to Security-
Based Swaps).\12\
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    \10\ See Securities Exchange Act Release No. 75611 (August 5, 
2015), 80 FR 48964 (August 14, 2015) (Final Rule: Registration 
Process for Security-Based Swap Dealers and Major Security-Based 
Swap Participants) (``Registration Process Release''); Securities 
Exchange Act Release No. 77617 (April 14, 2016), 81 FR 29960 (May 
13, 2016) (Final Rule: Business Conduct Standards for Security-Based 
Swap Dealers and Major Security-Based Swap Participants) (the 
``Business Conduct Standards Release''); Securities Exchange Act 
Release No. 78011 (June 8, 2016), 81 FR 39808 (June 17, 2016) (Final 
Rule: Trade Acknowledgment and Verification of Security-Based Swap 
Transactions) (``Trade Acknowledgment and Verification Release''); 
Securities Exchange Act Release No. 86175 (June 21, 2019), 84 FR 
43872 (August 22, 2019) (Final Rule: Capital, Margin, and 
Segregation Requirements for Security-Based Swap Dealers and Major 
Security-Based Swap Participants and Capital and Segregation 
Requirements for Broker-Dealers) (``Capital, Margin, and Segregation 
Release''); Securities Exchange Act Release No. 87005 (September 19, 
2019), 84 FR 68550 (December 16, 2019) (Final Rule: Recordkeeping 
and Reporting Requirements for Security-Based Swap Dealers, Major 
Security-Based Swap Participants, and Broker-Dealers) 
(``Recordkeeping Release''); Securities Exchange Act Release No. 
87780 (December 18, 2019), 85 FR 6270 (February 4, 2020) (Final 
Rules; Guidance: Rule Amendments and Guidance Addressing Cross-
Border Application of Certain Security-Based Swap Requirements) 
(``Cross-Border Release''); Securities Exchange Act Release No. 
87782 (December 18, 2019), 85 FR 6359 (February 4, 2020) (Final 
Rule: Risk Mitigation Techniques for Uncleared Security-Based Swaps) 
(``Risk Mitigation Release'').
    \11\ Except as otherwise specified by the Commission, the 
Commission has broadly coordinated the compliance date for the Title 
VII rulemakings with the compliance date for registration (the 
``Registration Compliance Date''), pursuant to the Registration 
Process Release, of security-based swap dealers and major security-
based swap participants (together, referred to as ``SBS Entities''). 
See Cross-Border Release, 85 FR at 6345 through 6346; see also 
Capital, Margin, and Segregation Release, 84 FR at 43954; 
Recordkeeping Release, 84 FR at 68600; and Risk Mitigation Release, 
85 FR at 6381. For further information regarding the Registration 
Compliance Date, see Key Dates For Registration of Security-Based 
Swap Dealers and Major Security-Based Swap Participants, available 
on the SEC website at: https://www.sec.gov/page/key-dates-registration-security-based-swap-dealers-and-major-security-based-swap-participants.
    \12\ Rule 0180 temporarily limits, with certain exceptions 
including Rule 4240, the application of FINRA rules with respect to 
security-based swaps. See Securities Exchange Act Release No. 88023 
(January 23, 2020), 85 FR 5261 (January 29, 2020) (Notice of Filing 
and Immediate Effectiveness of File No: SR-FINRA-2020-001).
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    FINRA believes it is appropriate to extend the Interim Pilot 
Program for a limited period, to September 1, 2021, in light of the 
extended compliance period that the Commission has specified with 
respect to the Title VII rulemakings, and in alignment with the 
expiration date of FINRA Rule 0180. FINRA believes that extending the 
implementation of Rule 4240 will permit FINRA additional time to 
consider any potential amendments to the Interim Pilot Program in light 
of the Commission's finalized Title VII rulemakings, in particular the 
Capital, Margin, and Segregation Release, thereby helping to promote 
stability in the financial markets and regulatory certainty for 
members.
    FINRA has filed the proposed rule change for immediate 
effectiveness. FINRA is proposing that the implementation date of the 
proposed rule change will be July 20, 2020. The proposed rule change 
will expire on September 1, 2021.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\13\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. FINRA believes that the proposed rule change is 
consistent with the Act because extending the implementation of FINRA 
Rule 4240 will permit FINRA additional time to consider any potential 
amendments to the Interim Pilot Program in light of the Commission's 
finalized Title VII rulemakings, in particular the Capital, Margin, and 
Segregation Release,

[[Page 36460]]

thereby helping to promote stability in the financial markets and 
regulatory certainty for members.
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    \13\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. FINRA believes that extending 
the implementation of FINRA Rule 4240 for a limited period, to 
September 1, 2021, will permit FINRA additional time to consider any 
potential amendments to the Interim Pilot Program in light of the 
Commission's finalized Title VII rulemakings, in particular the 
Capital, Margin, and Segregation Release, thereby helping to promote 
stability in the financial markets and regulatory certainty for 
members.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
FINRA has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-FINRA-2020-016 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-FINRA-2020-016. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. Copies of such filing also will be available for inspection and 
copying at the principal office of FINRA. All comments received will be 
posted without change. Persons submitting comments are cautioned that 
we do not redact or edit personal identifying information from comment 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
FINRA-2020-016 and should be submitted on or before July 7, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12892 Filed 6-15-20; 8:45 am]
BILLING CODE 8011-01-P