United States: SEC Proposes Title VII Regulatory Framework For Non-US Dealers Transacting In The United States

Last Updated: May 6 2015
Article by Steven D. Lofchie, Isaac Neill, Nihal S. Patel and Jeffrey L. Robins

Most Read Contributor in United States, September 2018

The U.S. Securities and Exchange Commission (the "SEC") reproposed rules addressing the application of certain requirements under Title VII of the Dodd-Frank Act (the "Reproposal") to non-U.S. persons dealing in security-based swaps ("SBSs"), where the transactions, or certain aspects of the transactions, take place in the United States.1

I.  Amendments to De Minimis Counting Requirements

Under the Reproposal and in addition to the circumstances set forth in the Cross-Border Final Rules,2 an SBS-dealing transaction that is entered into by a non-U.S. person and is "arranged, negotiated or executed" ("ANE") through personnel located in a U.S. branch or office, or through an (affiliated or unaffiliated) agent of such non-U.S. person located in the United States (such transaction, an "ANE Transaction"), will count toward that non-U.S. person's de minimis threshold for registration as a security-based swap dealer ("SBSD") regardless of whether the counterparty or any guarantor is a "U.S. person."3

II.  What Is an ANE Transaction?

The Reproposal does not define the meaning of "arranged, negotiated or executed" in the rule text; rather, the Reproposal preamble provides guidance on the meaning of these terms.4  A transaction generally is considered to be an ANE Transaction if it involves (1) "market-facing" activity (i.e., the activity of sales and trading personnel, including communications with potential counterparties) that is (2) conducted through a permanent location in the territorial United States, (3) whether by personnel of the non-U.S. person or an (affiliated or unaffiliated) agent of such person.

Notably, it appears that only activities conducted by personnel or agents of the non-U.S. person that involve material, trade-specific economic terms of SBS transactions would be considered to be "market-facing" under the proposed rules.  Thus, certain activities could be conducted in the U.S. without rendering such a transaction an ANE Transaction, including:

  • collateral management activities (e.g., the exchange of margin payments);
  • the preparation of master agreement documentation and/or collateral terms;
  • the submission of SBS transactions for clearing; and
  • reporting SBS transactions to swap execution facilities.

In addition, the involvement of U.S.-based attorneys in the negotiation of the terms and/or legal documentation for a transaction would not, by itself, bring a transactions within scope.

The Reproposal replaces an aspect of the Original Proposal that would have required a dealing party to consider the location of its counterparty's trading personnel (as well as whether the counterparty or its guarantor was a U.S. person) in determining whether a given transaction is required to be counted against its de minimis threshold.  Under the Reproposal, a non-U.S. person would need only to look to the location of its own SBS dealing activity in making this determination.  However, ANE Transactions must be counted against the de minimus threshold even if executed anonymously on a security-based swap execution facility, since the identity of the counterparty is irrelevant for purposes of the determination.

With regard to ANE Transactions executed through an agent (instead of an employee of the SBSD), the SEC provisionally rejected a proposal by commenters on the Original Proposal to limit its regulation to the agent (using its authority to regulate the agent as a "broker" under the existing Exchange Act).  The SEC did so because it reasoned that (1) banks acting as agents would be outside the scope of SEC jurisdiction (pursuant to various exemptions from the definition of "broker" in the Exchange Act) and (2) the SEC enforcement of the Exchange Act's antifraud and market integrity provisions could be frustrated by difficulties in obtaining the books and records of the principal5  The SEC specifically requested comment on the treatment of this issue – i.e., how it should regulate agents of SBSDs, since SBSs are also "securities" under the securities laws and acting as a "broker" of such products could subject a person to broker-dealer registration.

III.  External Business Conduct Requirements; Additional Aspects of the Reproposal

  • In line with the CFTC Staff Advisory discussed in footnote 4 below, the Reproposal would apply the SEC's (yet-to-be-adopted) external business conduct requirements to ANE Transactions of non‑U.S. SBSDs with non-U.S. counterparties.6
  • The Reproposal dropped an aspect of the Original Proposal that would have required an SBS between a registered non-U.S. SBSD and a non-U.S. counterparty to be subject to mandatory clearing and trading requirements.  This exclusion would extend to ANE Transactions of non‑U.S. SBSDs.
  • The scope of the SBS trade reporting requirements under recently adopted Reg. SBSR7 would be amended by:
    • requiring all ANE Transactions (including ANE Transactions of non-U.S. "de minimis" dealers) to be both reported and publicly disseminated;
    • changing the reporting hierarchy so that when a non-U.S. de minimis dealer faces a U.S. person, the parties may choose who reports (rather than putting the burden on the U.S. person); and
    • requiring reporting when two non-U.S. persons trade through a U.S. platform or broker-dealer (reporting would be done by the platform or broker-dealer).

IV.        Initial Commentary

The CFTC also uses the phrase "arranged, negotiated or executed" to describe trades that are entered into by non-U.S. swap dealers but which have a territorial connection with the United States that brings them within the scope of U.S. jurisdiction. However, the CFTC has provided far less guidance than the SEC on how the phrase should be interpreted. If the CFTC were to formally (or even informally) adopt the interpretation provided by the SEC, there would be two material benefits: first, the market's uncertainty about how the CFTC interprets the term would be reduced and second, non-U.S. swap dealers could conduct their SEC and CFTC-regulated swaps activities under fairly consistent guidance as to the extent of U.S. jurisdiction.

Separately, the SEC's approach to the application of the cross-border rules assumes that an agent, which is a different legal entity than the swap dealer, could be responsible for complying with the relevant requirements as to sales practices. The SEC asks specifically for comment on the legal structure through which sales practice duties may be imposed on such an entity. The absence of that structure is a material gap in the CFTC rules, which do not provide any clear method for an entity acting as a swaps broker to use to comply with sales practice requirements for swaps. Such a structure would be particularly useful in situations in which a U.S. entity is acting as sales agent for a non-U.S. swap dealer.  


1. See Exchange Act Release No. 74834 (Apr. 29, 2015) (the "Reproposal").  See also Exchange Act Release No. 72472, 79 Fed. Reg. 47278 (Aug. 12, 2014) (the "Cross-Border Final Rules"); Exchange Act Release No. 69490, 78 Fed. Reg. 30968 (May 23, 2013) (the "Original Proposal").  Please see our summaries of the Cross-Border Final Rules and the Original Proposal here and here in the Cadwalader Cabinet.

2. Under Exchange Act Rule 3a71-3 as adopted, a non-U.S. person that is not a "conduit affiliate" generally must count, for de minimis purposes, SBS transactions (1) with U.S. persons other than non-U.S. branches of SBSDs and (2) where the counterparty has rights of recourse against a U.S. person that is an affiliate of the non-U.S. person.  The Reproposal does not make any changes to these aspects of Rule 3a71-3.

3. See Exchange Act Rule 3a71-2 (De minimis Exception from SBSD Registration).

4. See Reproposal at pp. 77-88.  Notably, in defining what an "ANE Transaction" is, the SEC considered - at some length - how commenters responded to the CFTC's request for comments on a similar and highly controversial issue under the Commodity Exchange Act.  See Reproposal at pp. 56-63 (discussing CFTC Staff Advisory No. 13-69 (Applicability of Transaction-Level Requirements to Activity in the United States) and the subsequent withdrawal of the advisory and request for comment, 79 Fed. Reg. 1347 (Jan. 8, 2014)).

5. See Reproposal at pp. 84-95.

6. See Exchange Act Release No. 42396, 76 Fed. Reg. 42396 (July 18, 2011).

7. See here for a summary of the SBS reporting rules on the Cadwalader Cabinet.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions