The Securities and Exchange Commission today voted to propose rules requiring the application of risk mitigation techniques to portfolios of uncleared security-based swaps.  Proposed Rules 15Fi-3 through 15Fi-5 would establish requirements for registered security-based swap dealers and major security-based swap participants (SBS Entities) with respect to:

Relationship documentation, portfolio reconciliation, and portfolio compression are important tools for increasing operational efficiency and reducing risk for SBS Entities.  For example, requiring SBS Entities to document the terms of their trading relationship with each of their counterparties before executing a new security-based swap transaction should foster greater transparency and legal certainty by allowing market participants to have a clear understanding of each other's rights and obligations from the outset of the transaction.  Portfolio reconciliation further supports these goals by providing counterparties with a mechanism for identifying any discrepancies in the terms of a transaction throughout the life of the trade.  Finally, portfolio compression allows market participants to reduce their total number of open contracts — generally without affecting their net exposure — resulting in fewer trades to manage, maintain, and settle, and fewer opportunities for processing errors.

By proposing these rules, the Commission is taking another step in standing up its regime pursuant to Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and demonstrating its continued commitment to sound and efficient regulation of markets. 

"These are a series of common sense rules that should aid all participants in our swaps markets improve operational efficiency and reduce back-office risks," said SEC Chairman Jay Clayton.  "I am also pleased that we were able to craft these rules in a manner that further harmonizes the Commission's requirements applicable to security-based swap dealers and major security-based swap participants with the corresponding requirements applicable to CFTC-regulated entities."

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Risk Mitigation Techniques for Uncleared Security-Based Swaps 


The Securities and Exchange Commission today announced that it has voted to propose Rules 15Fi-3 through 15Fi-5 under the Securities Exchange Act of 1934 (Exchange Act) that, if adopted, would require the application of specific risk mitigation techniques to portfolios of security-based swaps not submitted for clearing to a central counterparty.  Specifically, the proposal would establish requirements for each registered security-based swap dealer or major security-based swap participant (collectively, an "SBS Entity") with respect to, among other things, (1) reconciling outstanding security-based swaps with applicable counterparties on a periodic basis, (2) engaging in certain forms of portfolio compression exercises, as appropriate, and (3) executing written security-based swap trading relationship documentation with each of its counterparties prior to, or contemporaneously with, executing a security-based swap transaction.


Proposed Rule 15Fi-3: Portfolio Reconciliation

Proposed Rule 15Fi-4: Portfolio Compression

Proposed Rule 15Fi-5: Trading Relationship Documentation

Other Highlights

Next Steps

The Commission will seek public comment on the proposed rules and rule amendments for 60 days following publication in the Federal Register.