The SEC final rule establishing recordkeeping and financial reporting requirements applicable to broker-dealers and security-based swap dealers ("SBSDs") was published in the Federal Register. The final rule becomes effective on February 14, 2020. The compliance date is August 14, 2021.

As previously covered, the final rule is applicable to (i) broker-dealers, (ii) SBSDs that are primarily regulated by a "prudential regulator" ("bank SBSDs") and (iii) SBSDs that are neither broker-dealers nor bank SBSDs ("standalone SBSDs"). Broker-dealers generally will be subject to existing rules adopted under Section 17(a) of the Exchange Act as amended to account for securities-based swap transactions. Bank SBSDs and standalone SBSDs will be subject to newly adopted Rules 18a-5 through 18a-10.

The rule amendments and new rules will establish, for broker-dealers and SBSDs, the following types of requirements:

  • record creation and preservation;
  • periodic financial reporting and annual auditing;
  • early warning notifications;
  • security counts; and
  • risk management procedures.

Exchange Act Rule 18a-10 ("Alternative Compliance Mechanism") was adopted to allow SBSDs that are registered as swap dealers and engaged in a swaps business to comply with the recordkeeping and reporting requirements of the CEA and the CFTC's rules in lieu of complying with SEC recordkeeping and reporting rules.

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.