FR 2020-28194

The document outlines Rule 17Ad-24, issued by the Securities and Exchange Commission (SEC), focusing on the regulation of security-based swaps. This rule exempts certain activities of registered security-based swap dealers, execution facilities, and individuals who engage in minimal dealings from being classified as "clearing agencies" under the Securities Exchange Act. The primary intention is to alleviate redundant regulatory burdens and to ensure that only activities that present significant risks require registration as a clearing agency. The SEC hopes to maintain investor protection and financial stability while promoting efficiency and competition in this sector.

General Summary

The rule acknowledges a potential overlap in regulatory requirements for entities involved in security-based swaps, a type of financial instrument. By clarifying which activities do not require clearing agency registration, the SEC aims to eliminate unnecessary regulatory procedures and align its approach with existing practices for similar entities in traditional securities markets.

Significant Issues and Concerns

A key issue with the document is its complex and technical language, which can be challenging for the general public to fully comprehend. The frequent use of legal jargon and references to other statutes, such as the Dodd-Frank Act, makes it less accessible. Furthermore, the document does not delve deeply into practical examples or case studies, which could help in illustrating the rule's real-world applications. While it mentions temporary exemptions, it lacks details about the criteria and processes involved.

The document also touches on the Regulatory Flexibility Act without extensively examining how small entities may be impacted, leaving a gap in understanding the rule's potential effects on these stakeholders. Additionally, the economic analysis focuses on qualitative aspects and potential benefits without offering quantitative data or illustrative examples, which diminishes the strength of its arguments.

Impact on the Public

For the general public, the introduction of Rule 17Ad-24 signifies an effort to ensure the security-based swap market operates efficiently without imposing unnecessary regulatory burdens on entities engaged in low-risk activities. By streamlining regulations, the SEC is not only looking to protect investors but also to safeguard the financial markets from instability that might arise from excessive or poorly assigned regulatory requirements.

Impact on Specific Stakeholders

The rule is expected to positively impact security-based swap dealers and execution facilities by reducing administrative burdens and regulatory costs. These entities will no longer need to register as clearing agencies for certain activities deemed low-risk, potentially saving significant resources in compliance and operational adjustments.

On the other hand, there may be concerns from third-party service providers who perceive the rule as unevenly applied compared to security-based swap execution facilities. This disparity may affect how these providers plan and execute their strategies, particularly if their services are integrally involved in the swaps process.

Overall, while Rule 17Ad-24 seeks to foster a more efficient and competitive environment in the security-based swap market, its lack of detailed explanations and quantitative analysis could pose challenges in terms of transparency and understanding among all affected parties.

The document from the Federal Register outlines a rule adopted by the Securities and Exchange Commission (SEC) that addresses exemptions from being classified as a "clearing agency" for certain entities dealing with security-based swaps. It includes several references to financial thresholds and costs, illustrating the financial considerations and impacts of the rule.

One of the critical financial thresholds mentioned is the $3 billion de minimis exception. This threshold allows certain entities engaging in security-based swap dealings to avoid registration as security-based swap dealers if their activities do not exceed this amount in a twelve-month period. Specifically, the document notes that out of over 4,000 entities engaged in such activities, potentially only 50 might exceed this threshold and therefore be required to register. This financial reference sets a clear limit that impacts how the rule applies to different entities, aiming to simplify and streamline regulations for those with lower volumes of activity.

The document also addresses the costs associated with compliance for entities that would otherwise be classified as clearing agencies. It mentions that the SEC estimates these compliance costs at $0.5 million in initial expenses and $1.2 million annually in ongoing costs. Without the new exemptions provided by the rule, entities would be required to incur these significant financial burdens. The reductions in compliance requirements likely represent a substantial saving for many businesses, particularly for smaller entities or those engaging in minimal dealing activity.

Moreover, the document highlights the financial implications for entities required to accept participants with net capital above $50 million. This stipulation, linked to the clearing agency requirements, underscores the financial scale at which these operations are expected to function efficiently. It also indicates that imposing such conditions could restrict entities' operational flexibility.

While the document discusses potential benefits from cost savings due to exemption from clearing agency registration, it lacks detailed quantitative data or specific examples to support the claims fully. This absence may make it challenging for stakeholders to gauge the precise economic benefits, especially in the context of competition and efficiency improvements purported by the rule. Additionally, there is a focus on exemptions and financial thresholds but little consideration of potential downsides or negative financial impacts that could arise, which may be a concern for those analyzing the comprehensive economic implications of the rule change.

Overall, the financial references and exemptions highlighted in the document aim to reduce regulatory burdens and costs associated with clearing agency registration, providing a framework that acknowledges the variable financial capacities of different entities operating in security-based swap markets.