Alert December 21, 2010

SEC Proposes Review Process for Mandatory Clearing of Security-Based Swaps and Proposes Requirements for End-User Exception from Mandatory Clearing of Security Based Swaps

The SEC issued rule proposals related to the mandatory clearing of security-based swaps pursuant to the Dodd-Frank Act.  The first proposal relates primarily to the processes by which a clearing agency submits to the SEC a proposal for a security-based swap that the clearing agency intends to clear, but also addresses the filing responsibilities of clearing agencies that are designated as systemically important and the process by which self-regulatory organizations seek approval of rule changes from the SEC.  The second proposal relates to the “end-user clear exception” from mandatory clearing of security-based swaps that applies where one party to a security-based swap is not a financial entity, is using security-based swaps to hedge or mitigate commercial risk, and notifies the SEC how it generally meets its financial obligations associated with entering into non-cleared security-based swaps.  Comments on the first proposal are due 45 days after its publication in the Federal Register.  Comments on the second proposal are due by February 4, 2011.