July 09, 2012
--- The Securities and Exchange Commission (SEC) took another step
toward regulating over-the-counter (OTC) derivatives by approving rules and interpretations for key definitions of
certain derivative products. ---
The SEC rules and interpretations further define the terms
“swap” and “security-based swap” and whether a particular instrument is a
“swap” regulated by the Commodity Futures Trading Commission (CFTC) or a
“security-based swap” regulated by the SEC. The SEC action also
addresses “mixed swaps,” which are regulated by both agencies, and
“security-based swap agreements,” which are regulated by the CFTC but
over which the SEC has antifraud and other authority.
rules and interpretations written jointly with the CFTC implement
provisions of the 2010 Dodd-Frank Act that establish a comprehensive
framework for regulating over-the-counter derivatives (see “SEC Provides Guidance on Swaps Requirements”).
of OTC derivatives, such as interest rate swaps, which have become
standard tools for reducing risk for defined benefit plans, may change
the way pension plans will use such instruments (see “Regulations Changing DB Use of OTC Derivatives”).
the regulations were first proposed, the ERISA Industry Committee urged
regulators to exclude from the major participant definitions employee
benefit plans that are subject to the fiduciary provisions in Title I of
the Employee Retirement Income Security Act (ERISA), noting that the
investment activities of ERISA Title I plans are already extensively
regulated and pose little risk to the U.S. financial system (see “ERIC Urges Exclusion of Benefit Plans from Swap Regs”).
regulations could also affect defined contribution plans that hold
stable value contracts. The SEC and CFTC are doing a study to determine
whether stable value contracts fall within the definition of a swap, and
if so, whether exempting such contracts from the swap definition is
appropriate and in the public interest (see “Regulators Seek Comment on Stable Value Contract Study”).
The latest SEC rule is at http://www.sec.gov/rules/final/2012/34-67286.pdf.
Once both agencies adopt the final rules, they will become effective 60
days after the date of publication in the Federal Register.