United States: SEC Adopts Rule Amendments Addressing Dealing Transactions Between Non-U.S. Persons That Are "Arranged, Negotiated, Or Executed" In The United States

Last Updated: February 23 2016
Article by Julian E. Hammar

 On February 10, 2016, the U.S. Securities and Exchange Commission ("SEC") approved final rule amendments to its cross border rules that address how the security-based swap dealer definition applies to security-based swap dealing transactions between non-U.S. persons that are "arranged, negotiated, or executed" in the United States. The final rules will become effective 60 days after publication in the Federal Register, which is forthcoming. Compliance with the final rules will be required after the later of 12 months following such publication or 2 months prior to the compliance date for registration as a security-based swap dealer under the registration rules. The final rules are available here.


Under the final rules, a security-based swap dealing transaction that is entered into by a non-U.S. person will count toward the non-U.S. person's de minimis exception threshold from registration as a security-based swap dealer, regardless of whether the counterparty is a "U.S. person," if the transaction is "arranged, negotiated, or executed" through personnel of:

  • the non-U.S. person located in a U.S. branch or office; or
  • an agent (whether affiliated or unaffiliated) of such non-U.S. person located in the United States.

Accordingly, a non-U.S. person that conducts security-based swap dealing activity through personnel located in the United States will have to register with the SEC if its dealing activity in the United States – including security-based swaps with non-U.S. persons that are "arranged, negotiated, or executed" using U.S. personnel under the final rules – exceeds the relevant de minimis threshold.1 The non-U.S. person is not required to consider under the final rules the location of its counterparty's operations or personnel (or that of the counterparty's agent) in determining whether the transaction should be considered in its own de minimis calculation.


Under interpretive guidance contained in the rule release, a security-based swap transaction is considered to be "arranged, negotiated, or executed" in the United States if it is "market-facing activity." In this context, "arrange" and "negotiate" means market-facing activity of sales or trading personnel in connection with a particular transaction, including interactions with counterparties or their agents.2 "Execute" refers to the market-facing act that, in connection with a particular transaction, causes the person to become irrevocably bound under the security-based swap under applicable law. "Arranging," "negotiating," and "executing" also includes directing other personnel (including non-U.S.-based personnel) to arrange, negotiate, or execute a particular security-based swap. Personnel directing the arrangement, negotiation, or execution of security-based swaps include personnel located in a U.S. branch or office that specify the trading strategy or techniques carried out through algorithmic trading or automated electronic execution of security-based swaps (although not personnel solely engaged in coding the algorithm), even if the related server is located outside the United States.

The release also clarifies the types of activities that are not market-facing with respect to a specific transaction (and thus are not arranging, negotiating, or executing the transaction). These activities include:

  • Designing security-based swaps (but not communicating regarding the contract in connection with a specific transaction or executing trades in the contract);
  • Preparation of underlying documentation for the transaction, including the negotiation of a master agreement and related documents;
  • Performing ministerial or clerical tasks in connection with the transaction (as opposed to negotiating with the counterparty the specific economic terms);
  • Collateral management activities (e.g., the exchange of margin payments) that may occur in the United States;
  • Submission of security-based swap transactions for clearing in the United States; and
  • Reporting security-based swap transactions to U.S. security-based swap data repositories.

Involvement of U.S.-based attorneys in the negotiation of the terms for a transaction also would not, by itself, bring a transaction within "market-facing activity." The final rule also does not require persons engaged in dealing activity to consider the location of personnel booking the transaction because the ministerial task of entering transactions on a non-U.S. person's books once the transaction has been executed does not constitute market-facing activity.


In addition, the market-facing activity of arranging, negotiating, or executing a transaction must be conducted by personnel "located in a U.S. branch or office" of the non-U.S. person or its agent in order to be counted toward the de minimis threshold. The SEC expects that a non-U.S. person will include in its de minimis calculation any transactions arranged, negotiated, or executed in the United States by personnel assigned to, on an ongoing or temporary basis, or regularly working in a U.S. branch or office. However, the non-U.S. person would not have to include transactions arranged, negotiated, or executed by personnel assigned to a foreign office if such personnel are only "incidentally" in the United States, such as to attend an education or industry conference.


In a footnote, the SEC states that "personnel" in this context is to be interpreted in a manner consistent with the definition of the term "associated person of a security-based swap dealer" in the Securities Exchange Act of 1934, irrespective of whether the non-U.S. person or its agent is itself a security-based swap dealer. This definition is not dependent upon whether a natural person is technically an "employee" of the non-U.S. person, and the SEC expects to consider whether the non-U.S. entity is able to control or supervise the actions of an individual when determining whether the individual is "personnel" of a U.S. branch or office or an agent of that entity.


The final rule exempts from its requirements security-based swaps arranged, negotiated, or executed in the United States by certain international organizations (e.g., multilateral development banks) as defined in SEC rules. The final rule does not exempt security-based swaps that are entered into anonymously on an execution facility or national securities exchange and are cleared through a clearing agency if the transaction is arranged, negotiated, or executed in the United States. Such security-based swaps must be counted toward the de minimis total.


The final rule is limited to addressing the calculation of the de minimis threshold by non-U.S. persons of security-based swap dealing activity arranged, negotiated, or executed in the United States. It does not address other issues that were contained in the April 2015 release proposing the rules, including whether external business conduct standards or security-based swap reporting requirements apply to such transactions. The SEC states that these matters will be addressed in subsequent releases.


The approach taken in the final rules differs from that of the Commodity Futures Trading Commission ("CFTC") in a 2013 staff advisory, in which CFTC staff took the position that, where a swap is between a non-U.S. swap dealer and another non-U.S. person, the CFTC's transaction-level requirements (e.g., mandatory clearing, trade execution, margin for uncleared swaps) would apply to the swap if it is arranged, negotiated, or executed by personnel or agents of the non-U.S. swap dealer located in the United States. However, under the CFTC's rules for determining which swaps count toward a non-U.S. person's de minimis threshold for purposes of swap dealer registration, such swaps do not count toward that threshold. The CFTC requested comment on whether it should adopt the staff advisory, and through a series of no-action letters the CFTC staff has granted relief until September 30, 2016 (or any prior date of CFTC action) to non-U.S. swap dealers from complying with the advisory. CFTC action with respect to the staff advisory is pending at this time.


1 Under SEC rules, the current de minimis threshold for security-based swap dealer registration is $8 billion in aggregate gross notional amount of dealing activity over the preceding 12 months for credit default swaps and $400 million for all other security-based swaps. These phase-in thresholds are temporary and, in the absence of action by the SEC, are set to drop to $3 billion and $150 million, respectively. The threshold for security-based swaps with special entity counterparties (e.g., governments, certain pension plans, and endowments) is $25 million.

2 The SEC explains that it uses the term "arrange" rather than "solicit" in recognition of the fact that a security-based swap dealer, by virtue of being commonly known in the trade as a dealer, may respond to requests by counterparties to enter into dealing transactions, in addition to actively seeking out such counterparties.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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.

Julian E. Hammar
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.