SEC adopts Regulation SE to regulate swap execution facilities

The Securities and Exchange Commission (SEC) adopted Regulation SE to create rules for the registration and regulation of security-based swap execution facilities (SBSEFs).

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The new regulatory framework, required under the Dodd-Frank Wall Street Reform and Consumer Protection Act, does three main things. It addresses the trade execution requirement for security-based swaps and the cross-border application of that requirement; mitigates conflicts of interest at SBSEFs and national securities exchanges that trade security-based swaps; and promotes consistency between Regulation SE and existing rules.

“Adopting Regulation SE fulfills Congress’s mandate and increases the transparency and integrity of the security-based swap market,” SEC Chair Gary Gensler said. “In taking up these matters in 2021, we heard from many market participants suggesting that we should look to the Commodity Futures Trading Commission’s (CFTC) rules for swap execution facilities as our template. I believe aligning the SEC’s regime closely with the CFTC’s garners many of the same benefits – bringing together buyers and sellers with transparent, pre-trade pricing. That lowers risk in the marketplace and protects investors.”

In adopting Regulation SE, the SEC sought to harmonize as closely as practicable with parallel rules of the CFTC that govern swap execution facilities (SEFs) and swap execution generally.

The adopted rules will become effective 60 days following the date of publication in the Federal Register.