SEC Proposes Process for Statutorily Disqualified Associated Persons to Effect Security-Based Swaps (Fed. Reg.)
The SEC proposed a new rule of practice that creates a process whereby a registered security-based swap dealer or major security-based swap participant ("SBS Entity") can apply for an order permitting an associated person who is subject to a statutory disqualification to effect or to be involved in effecting security-based swaps ("SBS"). Proposed Rule of Practice 194 was published in the Federal Register. Comments on the proposal are due by October 26, 2015.
The proposed adoption of Rule of Practice 194 would, among other things: (1) provide a process through which a security-based swap dealer ("SBSD") may apply to the SEC for permission for a person to effect (or to be involved in effecting) SBS transactions despite being subject to a statutory disqualification; (2) permit associated persons that are entities subject to a statutory disqualification to continue effecting SBS transactions if the statutory disqualification occurred prior to the compliance date of the Registration Rule (provided that the SBSD discloses such entities in its registration); and (3) allow persons who have been affirmatively determined by the CFTC, the NFA or a securities self-regulatory organization ("SRO") to be allowed to continue acting as associated persons with the SBSD despite a statutory disqualification, provided that the SBSD, subject to certain limitations, files a notice with the SEC.
See: 80 FR 51683.
Related news: SEC Adopts Registration Rule for Security-Based Swap Dealers (August 5, 2015).
Commentary
This is the SEC's way of attempting to correct a well-recognized flaw in Dodd-Frank. The flaw results from the statute's failure to provide for the "registration" of associated persons (with related determinations) despite the necessity of a statutory disqualification check that requires SEC action for persons subject to such disqualifications to be allowed to continue as associated persons. The SEC's approach contrasts with that of the CFTC for similar requirements. The CFTC delegated the registration of swap dealers to the NFA, and the process for a "waiver" of disqualifications was created through no-action letter relief. See CFTC Letters 12-15 and 12-69.