The Securities and Exchange Commission recently adopted new Regulation SE under the Securities Exchange Act of 1934 (“Exchange Act”), which creates a regime for the regulation and registration of security-based swap execution facilities (“SBSEFs”). Regulation SE also establishes permissible execution methods for security-based swaps (“SBS”) that are subject to the Exchange Act’s “trade execution requirement.” According to the release adopting Regulation SE (the “Adopting Release”), which was published on November 2, 2023, the SEC adopted new registration and regulation requirements to enhance the transparency and oversight of the over-the-counter derivatives markets. The regulation also implements Section 765 of the Dodd-Frank Act to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade SBS. Regulation SE, as adopted, is intended to be consistent with existing Exchange Act rules.
The new rules will become effective 60 days after the date of publication in the Federal Register. An entity that meets the definition of an SBSEF may register with the SEC as an SBSEF or as a national securities exchange and may file an application to register on Form SBSEF after the effective date. According to the SEC, SBSEFs would need to register within 180 days of the effective date and have its Form SBSEF complete within 240 days of the effective date if wants to continue to operate as an SBSEF while its application is pending. Foreign SBS trading venues may seek an exemption from the registration requirement. Once registered, SBSEFs must abide by the requirements of Regulation SE, including the establishment of SBSEF rules and compliance with rules governing items such as impartial access and trading and trade processing. An SBSEF will also be required make public timely information on price, trading volume, and other trading data on SBS transactions and publish on its website a specified report on market data. An SBSEF must also designate of a chief compliance officer and establish regulatory and reporting obligations for the CCO.