Recently adopted SEC rules that implement the provisions of Title VII of the Dodd-Frank Act were published in the Federal Register. The rules concern (i) business conduct standards, (ii) the required designation of a chief compliance officer ("CCO") for security-based swap dealers and major SBS participants ("SBS Entities"), and (iii) the cross-border application of the rules and the availability of substituted compliance.

In summary, the adopted rules require that:

  • an SBS Entity must verify its counterparty's status as an eligible contract participant or as a special entity (though it may rely generally on its counterparty's representations unless it has reason to doubt their accuracy);
  • an SBS Entity must disclose material information concerning a security-based swap, including information about risks and conflicts of interest;
  • an SBS Entity must disclose information concerning the daily mark-to-market of a security-based swap and the ability of a counterparty to require clearing;
  • communications by an SBS Entity with counterparties generally must be fair and balanced, and recommendations made by an SBS Entity must comply with suitability obligations;
  • an SBS Entity must have and enforce compliance procedures, and also must appoint a CCO;
  • an SBS Entity must not engage in fraudulent behavior;
  • whether acting as advisor or as counterparty, an SBS Entity is subject to additional obligations when dealing with a "special entity"; and
  • an SBS Entity is subject to "pay-to-play" prohibitions.

The final rules will be effective on July 12, 2016. The compliance date will be the same date as the registration compliance date ( as noted previously, this date is unknown, as it is tied to three other yet-to-be-completed SEC rulemaking initiatives). A potentially longer period is allowed for transactions "arranged, negotiated or executed" in the United States: compliance for such transactions is required on the later of (i) one year following Federal Register publication of the business conduct rules and (ii) the registration compliance date.

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