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Swaps Recordkeeping Rules Finalized

The SEC adopted rules to strengthen documentation of swaps trades. The rules are part of the commission’s regulations of the derivatives market mandated under Title VII of the Dodd-Frank Act.

The SEC on June 8, 2016, adopted rules strengthening the documentation of swaps trades, part of the commission’s broader regulation of the derivatives market under Title VII of the Dodd-Frank Act.

More than five years after proposing the rules, the commission published the final version in Release No. 34-78011, Trade Acknowledgment and Verification of Security-Based Swap Transactions. The rules go into effect 60 days after publication in the Federal Register , which normally occurs within a few weeks of rule’s posting to the SEC’s website.

The rules require dealers of financial swaps and large traders to provide both timely acknowledgements of trades and verify the terms of the acknowledgements with counterparties. The rules define a “trade acknowledgement” as a written or electronic record of a transaction sent between parties.

Dodd-Frank divvied up oversight of the swaps market between the SEC and the Commodity Futures Trading Commission (CFTC), with the SEC put in charge of financial swaps based on a single underlying security or a narrow securities index.

“These rules will result in more accurate and timely documentation for security-based swap transactions, which is a cornerstone of effective risk management,” SEC Chair Mary Jo White said in a statement. The rules, she added, “mark another significant step in completing the comprehensive regulatory framework for security-based swaps required by the Dodd-Frank Act.”

The SEC first proposed the Dodd-Frank rules in January 2011 in Release No. 34-63727, Trade Acknowledgment and Verification of Security-Based Swap Transactions, and two years later re-opened the proposal for comments to seek input on how the rule should align with parallel CFTC regulations.

Under the proposal, swaps trades that were executed and processed electronically would need to be acknowledged within 15 minutes, or 30 minutes for a transaction that was processed — but not executed — electronically. Trades that could not be processed electronically would need an acknowledgement within 24 hours.

The final rules relax the requirements to instead require a financial swap dealer or trader to provide a trade acknowledgement “promptly,” no later than the end of the first business day following a transaction. The additional leeway, SEC staff wrote in No. 34-78011, “takes in account that certain transactions make take more time to acknowledge because of the asset class of the transaction or the bespoke nature of the particular transaction.”