[Federal Register Volume 85, Number 116 (Tuesday, June 16, 2020)]
[Notices]
[Pages 36458-36460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-12892]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89036; File No. SR-FINRA-2020-016]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Extend the Implementation of FINRA Rule 4240
(Margin Requirements for Credit Default Swaps)
June 10, 2020.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 2, 2020, Financial Industry Regulatory Authority, Inc.
(``FINRA'') filed with the Securities and Exchange Commission (``SEC''
or ``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by FINRA. FINRA has designated
the proposed rule change as constituting a ``non-controversial'' rule
change under paragraph (f)(6) of Rule 19b-4 under the Act,\3\ which
renders the proposal effective upon receipt of this filing by the
Commission. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to extend to September 1, 2021 the
implementation of FINRA Rule 4240. FINRA Rule 4240 implements an
interim pilot program with respect to margin requirements for certain
transactions in credit default swaps that are security-based swaps.
The text of the proposed rule change is available on FINRA's
website at
[[Page 36459]]
http://www.finra.org, at the principal office of FINRA and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
On May 22, 2009, the Commission approved FINRA Rule 4240,\4\ which
implements an interim pilot program (the ``Interim Pilot Program'')
with respect to margin requirements for certain transactions in credit
default swaps (``CDS'').\5\ On May 21, 2019, FINRA filed a proposed
rule change for immediate effectiveness extending the implementation of
FINRA Rule 4240 to July 20, 2020.\6\
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\4\ See Securities Exchange Act Release No. 59955 (May 22,
2009), 74 FR 25586 (May 28, 2009) (Order Approving File No. SR-
FINRA-2009-012) (``Approval Order'').
\5\ In March 2012, the SEC approved amendments to FINRA Rule
4240 that, among other things, limit at this time the rule's
application to credit default swaps that are security-based swaps.
See Securities Exchange Act Release No. 66527 (March 7, 2012), 77 FR
14850 (March 13, 2012) (Order Approving File No. SR-FINRA-2012-015).
\6\ See Securities Exchange Act Release No. 85981 (May 31,
2019), 84 FR 26486 (June 6, 2019) (Notice of Filing and Immediate
Effectiveness of File No. SR-FINRA-2019-016).
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As explained in the Approval Order, FINRA Rule 4240, coterminous
with certain Commission actions, was intended to address concerns
arising from systemic risk posed by CDS, including, among other things,
risks to the financial system arising from the lack of a central
clearing counterparty to clear and settle CDS.\7\ On July 21, 2010, the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the ``Dodd-
Frank Act'') was signed into law.\8\ Title VII of the Dodd-Frank Act
established a comprehensive new regulatory framework for swaps and
security-based swaps,\9\ including certain CDS. The legislation was
intended, among other things, to enhance the authority of regulators to
implement new rules designed to reduce risk, increase transparency, and
promote market integrity with respect to such products.
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\7\ See Approval Order, 74 FR at 25588-89.
\8\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010).
\9\ The terms ``swap'' and ``security-based swap'' are defined
in Sections 721 and 761 of the Dodd-Frank Act. The Commodity Futures
Trading Commission (``CFTC'') and the Commission jointly have
approved rules to further define these terms. See Securities
Exchange Act Release No. 67453 (July 18, 2012), 77 FR 48208 (August
13, 2012) (Joint Final Rule; Interpretations; Request for Comment on
an Interpretation: Further Definition of ``Swap,'' ``Security-Based
Swap,'' and ``Security-Based Swap Agreement''; Mixed Swaps;
Security-Based Swap Agreement Recordkeeping). See also Securities
Exchange Act Release No. 66868 (April 27, 2012), 77 FR 30596 (May
23, 2012) (Joint Final Rule; Joint Interim Final Rule;
Interpretations: Further Definition of ``Swap Dealer,'' ``Security-
Based Swap Dealer,'' ``Major Swap Participant,'' ``Major Security-
Based Swap Participant'' and ``Eligible Contract Participant'').
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The Commission has finalized a majority of its rulemakings pursuant
to Title VII of the Dodd-Frank Act (the ``Title VII rulemakings'').\10\
Further, the Commission has specified an extended compliance period for
these new rules and guidance so as to permit sufficient time to prepare
for and come into compliance with the new requirements.\11\ In tandem
with the Commission's action, FINRA extended, to September 1, 2021, the
expiration date of FINRA Rule 0180 (Application of Rules to Security-
Based Swaps).\12\
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\10\ See Securities Exchange Act Release No. 75611 (August 5,
2015), 80 FR 48964 (August 14, 2015) (Final Rule: Registration
Process for Security-Based Swap Dealers and Major Security-Based
Swap Participants) (``Registration Process Release''); Securities
Exchange Act Release No. 77617 (April 14, 2016), 81 FR 29960 (May
13, 2016) (Final Rule: Business Conduct Standards for Security-Based
Swap Dealers and Major Security-Based Swap Participants) (the
``Business Conduct Standards Release''); Securities Exchange Act
Release No. 78011 (June 8, 2016), 81 FR 39808 (June 17, 2016) (Final
Rule: Trade Acknowledgment and Verification of Security-Based Swap
Transactions) (``Trade Acknowledgment and Verification Release'');
Securities Exchange Act Release No. 86175 (June 21, 2019), 84 FR
43872 (August 22, 2019) (Final Rule: Capital, Margin, and
Segregation Requirements for Security-Based Swap Dealers and Major
Security-Based Swap Participants and Capital and Segregation
Requirements for Broker-Dealers) (``Capital, Margin, and Segregation
Release''); Securities Exchange Act Release No. 87005 (September 19,
2019), 84 FR 68550 (December 16, 2019) (Final Rule: Recordkeeping
and Reporting Requirements for Security-Based Swap Dealers, Major
Security-Based Swap Participants, and Broker-Dealers)
(``Recordkeeping Release''); Securities Exchange Act Release No.
87780 (December 18, 2019), 85 FR 6270 (February 4, 2020) (Final
Rules; Guidance: Rule Amendments and Guidance Addressing Cross-
Border Application of Certain Security-Based Swap Requirements)
(``Cross-Border Release''); Securities Exchange Act Release No.
87782 (December 18, 2019), 85 FR 6359 (February 4, 2020) (Final
Rule: Risk Mitigation Techniques for Uncleared Security-Based Swaps)
(``Risk Mitigation Release'').
\11\ Except as otherwise specified by the Commission, the
Commission has broadly coordinated the compliance date for the Title
VII rulemakings with the compliance date for registration (the
``Registration Compliance Date''), pursuant to the Registration
Process Release, of security-based swap dealers and major security-
based swap participants (together, referred to as ``SBS Entities'').
See Cross-Border Release, 85 FR at 6345 through 6346; see also
Capital, Margin, and Segregation Release, 84 FR at 43954;
Recordkeeping Release, 84 FR at 68600; and Risk Mitigation Release,
85 FR at 6381. For further information regarding the Registration
Compliance Date, see Key Dates For Registration of Security-Based
Swap Dealers and Major Security-Based Swap Participants, available
on the SEC website at: https://www.sec.gov/page/key-dates-registration-security-based-swap-dealers-and-major-security-based-swap-participants.
\12\ Rule 0180 temporarily limits, with certain exceptions
including Rule 4240, the application of FINRA rules with respect to
security-based swaps. See Securities Exchange Act Release No. 88023
(January 23, 2020), 85 FR 5261 (January 29, 2020) (Notice of Filing
and Immediate Effectiveness of File No: SR-FINRA-2020-001).
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FINRA believes it is appropriate to extend the Interim Pilot
Program for a limited period, to September 1, 2021, in light of the
extended compliance period that the Commission has specified with
respect to the Title VII rulemakings, and in alignment with the
expiration date of FINRA Rule 0180. FINRA believes that extending the
implementation of Rule 4240 will permit FINRA additional time to
consider any potential amendments to the Interim Pilot Program in light
of the Commission's finalized Title VII rulemakings, in particular the
Capital, Margin, and Segregation Release, thereby helping to promote
stability in the financial markets and regulatory certainty for
members.
FINRA has filed the proposed rule change for immediate
effectiveness. FINRA is proposing that the implementation date of the
proposed rule change will be July 20, 2020. The proposed rule change
will expire on September 1, 2021.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\13\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. FINRA believes that the proposed rule change is
consistent with the Act because extending the implementation of FINRA
Rule 4240 will permit FINRA additional time to consider any potential
amendments to the Interim Pilot Program in light of the Commission's
finalized Title VII rulemakings, in particular the Capital, Margin, and
Segregation Release,
[[Page 36460]]
thereby helping to promote stability in the financial markets and
regulatory certainty for members.
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\13\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. FINRA believes that extending
the implementation of FINRA Rule 4240 for a limited period, to
September 1, 2021, will permit FINRA additional time to consider any
potential amendments to the Interim Pilot Program in light of the
Commission's finalized Title VII rulemakings, in particular the
Capital, Margin, and Segregation Release, thereby helping to promote
stability in the financial markets and regulatory certainty for
members.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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\14\ 15 U.S.C. 78s(b)(3)(A).
\15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
FINRA has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-FINRA-2020-016 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2020-016. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of such filing also will be available for inspection and
copying at the principal office of FINRA. All comments received will be
posted without change. Persons submitting comments are cautioned that
we do not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
FINRA-2020-016 and should be submitted on or before July 7, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-12892 Filed 6-15-20; 8:45 am]
BILLING CODE 8011-01-P