Matthew Kulkin and Twane Harris, WilmerHale1

I. Introduction

Gary Gensler served as Chair of the Commodity Futures Trading Commission ("CFTC") from May 26, 2009 to January 3, 2014.2 He presided over the CFTC during the period that followed the 2008 financial crisis and led the CFTC through the development and implementation of Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"). During that time, the CFTC established new rules related to the trading, clearing, and reporting of swaps and fundamentally changed the over-the-counter swaps market regulatory framework. Chair Gensler calculated that, during his tenure, the CFTC completed "over 170 Dodd-Frank actions - nearly one a week since it was signed into law."3

On April 17, 2021, Mr. Gensler was sworn in as Chair of the Securities and Exchange Commission ("SEC"). Over the last 20 months, the SEC has moved rapidly to propose and consider a number of regulatory actions. In fact, industry groups4 and legislators5 have expressed concerns with Chair Gensler's SEC's pace of action.

More recently, before this American Bar Association Derivatives and Futures Law Committee, Chair Gensler provided remarks focused primarily on the regulation of the securitybased swaps market and security-based swap execution facilities ("SBSEFs").6 Chair Gensler discussed the new requirements under which security-based swap dealers ("SBSDs")7 and major security-based swap participants ("MSBSPs")8 were required to register with the SEC before the end of 2021, among other topics. Chair Gensler also discussed that the SEC has made a substituted compliance determination order and expects to receive and review substituted compliance applications for additional jurisdictions soon.9

During his SEC Chairmanship confirmation hearings, Chair Gensler committed to "complete all rulemakings directed by Congress," including the outstanding Dodd-Frank Title VII rulemakings.10 Since his confirmation, the SEC has moved forward with several security-based swap initiatives, including proposals related to fraud and manipulation, electronic recordkeeping, and SBSEF registration and trading, among other items. Staff in the Division of Trading and Markets have also provided interpretive guidance and no-action relief to facilitate the implementation of the SEC's security-based swap rules.

This paper analyzes the SEC's progress with respect to implementation of Title VII of Dodd-Frank for security-based swaps. The paper covers rules adopted and implemented by the SEC, proposals pending adoption, staff action by the Division of Trading and Markets, and highlights relevant cases brought by the SEC's Division of Enforcement.

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1. Matthew Kulkin is a partner in WilmerHale's Securities and Financial Services Department. He previously served as the Director of the CFTC's Division of Swap Dealer and Intermediary Oversight. Twane Harris is a senior associate in WilmerHale's Securities and Financial Services Department.

2 About the CFTC, Former Commissioners, Chairman Gary Gensler, CFTC.

3 Remarks of Chairman Gary Gensler at Farewell Event, Public Statements & Remarks, CFTC (Dec. 19, 2013).

4 Letter from Investment Company Institute, et al, to SEC Chair Gary Gensler (Apr. 5, 2022).

5 Letter from U.S. Senator Thom Tillis, et al, to SEC Chair Gary Gensler (Oct. 27, 2022).

6 "Security-based swap execution facility" means "a trading system or platform in which multiple participants have the ability to execute or trade security-based swaps by accepting bids and offers made by multiple participants in the facility or system, through any means of interstate commerce, including any trading facility, that (A) facilitates the execution of security-based swaps between persons; and (B) is not a national securities exchange." 15 U.S.C. § 78c(77).

7 An SBSD means any person who: (1) holds itself out as a dealer in security-based swaps; (2) makes a market in security-based swaps; (3) regularly enters into security-based swaps with counterparties as an ordinary course of business for its own account; or (4) engages in any activity causing it to be commonly known in the trade as a dealer or market maker in security-based swaps. 17 C.F.R. § 240.3a71-1(a).

8 An MSBSP means any person:

(1) that is not a security-based swap dealer; and (2)(i) that maintains a substantial position in security-based swaps for any of the major security-based swap categories, excluding both positions held for hedging or mitigating commercial risk, and positions maintained by any employee benefit plan (or any contract held by such a plan) as defined in paragraphs (3) and (32) of section 3 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002) for the primary purpose of hedging or mitigating any risk directly associated with the operation of the plan; (ii) Whose outstanding security-based swaps create substantial counterparty exposure that could have serious adverse effects on the financial stability of the United States banking system or financial markets; or (iii) That is a financial entity that: (A) Is highly leveraged relative to the amount of capital such entity holds and that is not subject to capital requirements established by an appropriate Federal banking agency (as defined in 15 U.S.C. 78c(a)(72)); and (B) Maintains a substantial position in outstanding security-based swaps in any major security-based swap category. 17 C.F.R. § 240.3a67-1(a).

9 "A 'New' New Era:" Prepared Remarks Before the International Swaps and Derivatives Association Annual Meeting, Chair Gary Gensler (May 11, 2022).

10 Committee on Banking, Housing, and Urban Affairs Nominations of The Honorable Gary Gensler and The Honorable Rohit Chopra (Mar. 2, 2021).

Presented to the American Bar Association's Derivatives and Futures Law Committee Winter Meeting 2023 February 2-4, 2023

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